What are the best home loan rates in 2021?

Looking to buy your first apartment or switch to a cheaper home loan this year? Given how much interest rates have fallen over the past 12 months, the general consensus is that 2021 could be a great year to tick off these goals.

The big question though, is what home loan rates should borrowers be looking for when shopping around? After three Reserve Bank cuts in 2020 which brought the official cash rate down by a massive 0.65%, what’s considered ‘low’ or ‘competitive’ has unsurprisingly changed a lot. 

As a rule of thumb, you’re likely paying too much with a rate above 3.00%, considering that a big bulk of owner occupier home loans now start with ‘2’ and some even begin with ‘1’.

Top fixed rate home loans

Since the last RBA cut in November, a number of home loans have dipped below the 2% threshold - the majority being fixed rate offers. So while the 3-year fixed rate average for owner occupiers sits at 2.38%, Mozo data reveals you can lock in rates as low as 1.95% for that same term length.

For shorter terms (1 or 2 years), the lowest fixed rate in the Mozo database starts even lower at 1.89%, although a couple of those deals are exclusively for first home buyers.

Top variable rate home loans

What about if you want a mortgage with more repayment flexibility and other perks like an offset account? Then variable rate loans may be a better place to look. 

Although the past year has seen fewer lenders make moves on variable rates than fixed rates, the variable rate average has nonetheless dropped by 41 basis points since December 2019. 

For borrowers who’ve either saved up the standard 20% deposit or built at least 20% in home equity, here are the current variable rate leaders in our database - all of which sit substantially below the average of 3.31%.

To make sense of these rates, let’s do the maths. Say you’re borrowing $700,000 over 25 years. According to our home loan repayments calculator, refinancing from the average variable rate (3.31%) to the lowest in our database (1.99%) could cut down your interest costs by $140,960 over the life of the loan.

Top low deposit home loans

Domain’s First Home Buyer Report last September found that it took first home buyers in Sydney a whopping six years and six months to put together a 20% house deposit. 

If you can’t afford to wait that long - especially amid forecasts that property prices are set to rise further this year - then chances are you’re considering a low deposit home loan instead. That’s a loan for borrowers with a deposit less than 20% or a loan-to-value ratio (LVR) above 80%. The catch though is, you’ll end up paying more in interest and monthly repayments.

That’s not to say you’re entirely shut from competitive rates. Here are the best home loan rates at 95% LVR (i.e. for borrowers with a 5% deposit) in our database.

Just beware that if you have a small deposit but no guarantor (either your parents or the government under the First Home Loan Deposit Scheme), then you may have to pay Lenders Mortgage Insurance, which could amount to thousands of dollars.

Your next steps 

Now that you have a clearer idea of what home loan rates you should be aiming for, it’s time to shop around!

Get started with a few competitive options below, or visit our home loans comparison hub for even more offers from over 80 different lenders.

^Rates drawn from the Mozo database, accurate as of 13 January 2021.