How to shop for a home loan in 2023

There are lots of questions you’ll need to ask yourself when looking for a home loan. Which lender is right for you? Do you want a fixed or variable interest rate? What are the features you can’t do without? 

Finding a loan that ticks all the boxes can be a difficult task, but there are steps you can take to make things easier for you. Below, we cover a few things you should keep in mind when shopping for a home loan in 2023. 

Consider different lenders

Most Australians tend to get a home loan with the institution they’ve banked with for most of their lives — usually one of the big four banks — but this isn’t always the best option. 

Rather than reflexively turning to the bank you keep your savings with, make sure to look around and see what’s being offered by other lenders. It’s often the case that online lenders will have sharper rates, since their overhead costs don’t run as high.

You might also find that different lenders will let you borrow different amounts. That’s because lenders vary in how they conduct their serviceability tests, and some might use lower assessment rates when gauging customers’ ability to pay off a loan.

Understand the comparison rate

When advertising their home loans, lenders are required to show what’s known as a comparison rate. This number combines the advertised rate with any extra charges related to the loan, giving you a more accurate picture of how much it will cost.

For borrowers, the comparison rate is a useful tool for weighing up different options. You might find that a loan with a low rate but plenty of fees might have a higher comparison rate than one with an average rate and no fees.

Consider where interest rates are heading

Whenever the Reserve Bank of Australia makes changes to the cash rate, lenders tend to shift their mortgage rates by a similar amount. Having an idea of where interest rates are heading can help you decide which type of loan you should take out.

For example, if rates are falling, opting for a variable rate can allow you to take advantage of any price drops over time.

By the same token, a fixed rate might seem like a good idea if rates are trending upwards, but banks may already be one step ahead of you. Fixed rates are predictive in nature, meaning lenders consider what the interest rate environment will look like in the future when setting them.

When it became apparent in mid-2022 that the RBA would be lifting the cash rate, lenders began phasing out many of their low fixed rate deals. Nowadays, fixed rates have overtaken variable rates as the more expensive of the two.

Know which features you want

There’s more to a home loan than just the interest rate. You’ll also need to think about the features you plan to use. Some common features include:

• Offset account

• Redraw facility
  

• The ability to make extra repayments

• Split rate option

• Home loan top-up

• Repayment holiday
  

Try to narrow these down to a few ‘must-haves’ — the features that you’re certain to use — so you’re not paying any more than you need to be.

Just keep in mind that fixed rate loans tend to be more limited in the features they offer than variable rate loans. For example, not all fixed rate loans let you make extra repayments, and the ones that do might restrict the amount you can pay each year.

Be mindful of your credit score

When it comes time to seek pre-approval, it’s a good idea to limit the number of applications you send out. That’s because each time a lender checks your credit report, it triggers what’s known as a ‘hard enquiry.’

Too many hard enquiries over a short period of time can give banks the impression that your applications are being rejected, which can wind up hurting your chances of getting approved.

So instead of applying with multiple lenders in the hopes of finding the best deal, do plenty of research beforehand and hone in on one or two lenders that seem to suit best.  

Sign up for the shortest term you can afford

Stretching out your home loan term can make your repayments easier to manage, but you’ll only wind up paying more in interest over the long run. Try to select as short a term as you can while still giving your budget some breathing room. 

Ready to start your search? Visit our home loan comparison page, where you’ll be able to filter your search by rate and type.