According to the 2016 census, over a third of Australians have a mortgage on their home - a huge swathe of the population. Given that a mortgage is likely to be the largest financial commitment you will ever ever make, it makes sense to commit the time and research to finding the best mortgage deal you can - especially when you’re going to be making repayments over a period of decades.
Thankfully the days of needing to go into your branch to negotiate a deal with your bank manager are long gone, with hundreds of great mortgage offers available to make it easier to find the right deal for you. That’s where Mozo comes in! We compare over 500 mortgage interest rates and products from 80 different lenders, including from the Big Four banks, credit unions and even online lenders, so you know you’re getting a great overview of some of the best deals on the market.
But before you start your search, there are a couple of questions you should ask yourself first.
What kind of borrower am I?
Whether you’re a young Australian entering the property market for the first time, an investor looking for their next opportunity, or a family on the hunt for a cheaper mortgage to cut down their repayments, it’s always important to compare a range of deals to find one that’s best suited to you.
For instance, as a first home buyer you may want a deal that comes with a lower deposit requirement on top of the cheapest mortgage rate you can get, whereas if you’re refinancing you may be on the lookout for a low rate deal which also offers features that can help you save - such as an offset account or the potential to make free extra repayments.
Speaking of repayments, it’s always a good idea to see just how much you can afford to borrow before you start comparing mortgages, as borrowers able to make principal and interest repayments will generally be able to snag cheaper rates than borrowers who only make interest repayments.
Which type of mortgage interest rate is right for me?
Variable interest rate
The most common type of mortgage in Australia, variable rate mortgages are typically dictated by the movement of the official RBA cash rate, though it’s not uncommon for banks to move their rates out of cycle.
A variable rate mortgage could be a great option for borrowers who like the idea of flexibility in terms of being able to make extra repayments, or in the potential to make lower repayments if rates go down. Obviously a mortgage rate drop is great news for borrowers with a variable loan, but there’s always the possibility they will go up - meaning you’d need to pay more. That’s why it’s important to factor in the possibility of a rate rise before you borrow, or stash away savings to act as a buffer.
Fixed interest rate
A fixed rate mortgage provides borrowers absolute certainty when it comes to making repayments, as the rate is (no surprises) “fixed” for a set period of time - usually between 1-5 years. On the plus side this could mean that you’re insulated from mortgage rate rises over that period, though it also means you could miss out on making lower repayments if they fall.
Once the fixed period is over, borrowers will have the option of fixing again for another set period, or switching to a variable rate mortgage.
Just bear in mind that you might not have access to all of the features you would with a variable rate offer should you opt for a fixed rate mortgage, and they also tend to come with higher rates.
Split interest rate
One option you might not be aware of as a borrower is your potential to split your mortgage. While not every lender will offer you this possibility, if they do you’ll be able to split part of the amount you borrow as a fixed rate while leaving the other portion as a variable rate. This means borrowers can make the most of the flexibility and features of a variable loan and the repayment certainty of a fixed rate.
How much will I able be to borrow?
There are a number of factors that go into the size of the loan you’ll be able to borrow from your lender, with one of the biggest components the actual deposit you can put down. In Australia the general preference among lenders is to keep your LVR (Loan to Value Ratio) under 80%, which means you’ll be required to save up at least a 20% deposit. However, some mortgage providers do offer loans with LVRs up to 95% (a 5% deposit), though you’ll generally have to take out Lenders Mortgage Insurance (LMI) if you can’t come up with a 20% deposit.
Lenders also set minimum and maximum loan amounts which could affect the amount you’re able to borrow and the mortgage rate you’re offered, with values typically ranging anywhere from tens of thousands to millions of dollars.
Want to see just how much you’ll be able to borrow? Wonder no more by plugging your details into the Mozo home loans borrowing calculator.
What kind of mortgage features should I look out for?
While your mortgage interest rate is probably the main feature you’ll be interested in, many of the best mortgages also come packed with a bunch of other handy features. These typically include offset accounts and the potential to make extra repayments which could help you pay off your loan faster, to a redraw facility which will allow you to dip into those repayments, and even repayment holidays which allow you to (you guessed it) take a break from repayments.
Just bear in mind that while some of these features may come included at no added cost, many mortgage lenders will charge extra fees or a higher rate for the privilege.
What kind of fees and costs can I expect to pay on a mortgage?
When it comes to finding a mortgage, looking at the interest rate is a good place to start, but you’ll also need to take into account any fees you may be charged by your lender as well as other expenses you may have to shell out.
While they differ between mortgage providers, some of the more common expenses you can expect to pay include:
Application fee: Also known as an establishment fee, this is a one off fee (usually in the hundreds of dollars) you can expect to pay for your lender to set up your mortgage.
Valuation, Legal and Settlement fees: You may also be charged other upfront fees by your lender in order for a professional to value your property, for any legal costs and upon the settlement on the mortgage.
Ongoing service fee: Also called an administrative fee, this is a fee charged by your lender to administer your mortgage and is generally payable on a monthly or yearly basis.
Discharge fee: Simply put, this is a fee you could be charged when you finish paying off or ‘discharge’ your mortgage.
If you go above the 80% LVR mark you’ll also generally be required to pay LMI (Lenders Mortgage Insurance) which comes as a one off payment upon settlement. Depending on your situation, you could also be liable to pay stamp duty. This can be a significant cost depending on the state you live in, the cost of your property, the type of property you’re buying and whether or not you’re a first home buyer, so to find out how much extra you might need to factor in check out our stamp duty calculator.
What’s a mortgage comparison rate?
A comparison rate is a essentially a tool to help mortgage borrowers get a clearer picture of what they’ll actually be paying for their loan. It not only includes the headline interest rate, but also the fees and costs charged for a particular loan - making it easier to accurately compare mortgage rates between providers.
You’ll be able to compare mortgage comparison rates using our comparison tables, but just bear in mind that while it may give you a clearer picture than the mortgage rate itself, the comparison rate doesn’t take into account government charges or redraw and early repayment fees.
How much could I save on my mortgage by comparing?
After looking at the difference between some mortgages you might be questioning the value of comparing mortgage interest rates at all, especially when the difference between most offers is within 1%.
But hold one for one moment, because while the interest rate difference may seem small, the sheer size of your mortgage combined with the long period of time you’re paying it off over (generally 25 to 30 years), means you’ll be forking out a considerable amount of interest over that period - we’re talking hundreds of thousands of dollars. That’s why opting for a more competitive mortgage rate could end up saving you a huge amount of money.
Let’s look at an example using the Mozo mortgage repayments calculator.
Sarah is a first home buyer and wants to take out a $400,000 loan (she has her 20% deposit) to buy a two bedroom apartment in her city. If Sarah opted for a 3.75% ongoing mortgage interest rate over a 25 year loan, making both principal and interest repayments on a monthly basis, she would need to pay $2,057 each month or a total of $216,957 in interest over the life of the loan.
Conversely, if Sarah chose a mortgage with an interest rate of 4% she would end up paying $2,111 each month or a total of $233,404 over the life of the loan. That works out to a sizeable $16,447 difference between the two loans.