The number one factor in determining a cheaper home loan is a low interest rate. The lower the interest rate, the cheaper your monthly home loan repayments will be.
Let's compare 2 otherwise identical home loans with slightly different interest rates.*
| Interest rate | 6.00% | 5.34% |
|---|---|---|
| Loan amount | $585,101 | $585,101 |
| Loan term | 30 years | 30 years |
| Monthly repayment | $3,508 | $3,264 |
| Monthly saving | N/A | $244 |
| Annual saving | N/A | $2,928 |
As you can see, with the lower interest rate, you save $244 a month – or $2,928 a year.
*We're using the average owner-occupier home loan size, the average variable rate loan in Finder's database and the lowest rate currently available on Finder.
Every month, we analyse the rates in our database to create a list of the market's cheapest loans.
On 04 July the official cash rate was held at:
4.10%
The lowest owner-occupier loan in Finder’s database is:
5.59%
Assuming the average owner occupier home loan size of $584,8361 you would be making monthly repayments of:
$3,447
Borrowers breathed a sigh of relief at the start of July when the Reserve Bank of Australia (RBA) announced it would hold the official cash rate at 4.10%. The rate has risen by 4% since the RBA began its offensive against inflation in May 2022.
This has seen the average borrower repayment increase by about $1,200 a month.
According to Finder’s Consumer Sentiment Survey in June, more than 40% of Australians are struggling to pay their home loan. 4 in 5 Australians had faced a mortgage increase over the past year.
Unfortunately, economists aren’t expecting that the latest hold is a sign that the cash rate has peaked.
4 in 5 experts that Finder surveyed ahead of the RBA decision believe the cash rate will peak between July and November. Predictions vary between 1 or 2 more hikes in that time.
There is positive news though: the inflation figure, which the RBA is trying to get back within the 2-3% range, looks to be dropping. Inflation from May 2022 to May 2023 grew by 5.6%, the lowest increase since April last year.
Rebecca Pike is Finder's senior writer for money. She joined Finder after almost four years writing about mortgage and finance, including three years as editor of Mortgage Professional Australia.
Right now, variable rate loans are much lower than fixed rate loans. This is usually the case, but not always. Read more in our guide on the difference between fixed and variable rates.
To find the cheapest home loan, don't stick with the same bank you've used your whole life. Compare lenders big and small, and you'll quickly find there's a big difference between them.
Online lenders, fintechs and small digital banks tend to have cheaper home loan rates than bigger banks. If you're not comparing rates from these lenders, you might miss some of the best deals on the market.
Online lenders are cheap, but it's a myth that the Big Four always have much higher rates. It's a very competitive market. There's often not much difference between a hot online deal and a big bank's lowest variable rate.
Many of the cheapest loans among Finder's partners (and the wider market) are from smaller banks and local credit unions. This is why you really have to compare as many lenders as you can.
The cheapest home loan has the lowest interest rate. But every borrower has different needs. So beyond a low rate, you need to get a loan that actually helps you achieve your property goals and financial needs.
Variable rate home loans typically let you make extra repayments. By paying more off your loan than the required monthly repayments, you get out of debt faster. This means you pay less interest.
Fixed rate loans are less likely to allow extra repayments.
Owner-occupier home loans have the cheapest rates. But they're no good if you're a property investor because you need an investment loan. Make sure you compare loans that match your needs as a borrower.
Most borrowers want a principal-and-interest loan, but for some investors, an interest-only loan offers tax benefits.
Some home loans come with 100% offset accounts. This incredibly useful loan feature is essentially a bank account attached to your mortgage. But instead of earning interest, every dollar in the offset account reduces the interest your lender charges.
You still repay the same amount every month, but by putting money in your offset account, you end up finishing the loan faster. This saves you interest.
If I had to credit just one thing with helping me repay my home loan in just 7 years, I'd say it was an offset account. This is a debt-busting secret weapon. You should keep every cent to your name in one of these – we're talking your savings for everything, your emergency cash stash and even your salary. You'll likely save tens of thousands of dollars and shave years off your time in debt.
Nicole Pedersen-McKinnon
Freelance finance journalist
Most borrowers choose 30-year loan terms. This keeps your monthly repayments as low as possible.
With a shorter loan term, of say, 25 years, your monthly repayments will be higher. But because you get out of debt 5 years sooner, it ends up cheaper in the long run because you pay less interest.
Let's break down 3 examples. These loans are all for the same amount borrowed, but the loan term changes:
| Loan term | 30 years | 25 years | 20 years |
|---|---|---|---|
| Interest rate | 5.00% | 5.00% | 5.00% |
| Loan amount | $600,000 | $600,000 | $600,000 |
| Monthly repayment | $3,221 | $3,508 | $3,960 |
| Total cost* | $1,159,535 | $1,052,263 | $950,337 |
*Total cost here refers to the amount of interest you pay over the life of the loan, plus the principal.
As you can see, a longer loan term means cheaper monthly repayments. But a shorter loan means you pay less interest in the long run, making the whole loan cheaper.
Some lenders charge multiple loan fees that can add up to hundreds of dollars. But other lenders charge basically no fees at all (you still have to pay government fees like a mortgage registration fee).
If 2 loans have identical interest rates and features, the one with fewer fees will be the cheapest home loan.
While it's often easier said than done, saving a bigger deposit means borrowing less money. And that instantly makes your home loan cheaper.
It saves you money in other ways too:
Parents give their kids an average of $33,278 to help with a house deposit, according to 2023 data from Finder's CST.
Work out how much you need to earn to buy a house in any Australian suburb.
When your fixed rate period ends you move to a variable rate. If you fixed when rates were low, you could end up on a much higher rate.
Get 100,000 Qantas Frequent Flyer points per year with a Qantas Money home loan, available for owner-occupiers and investors.
First home buyers in NSW now have the option of paying the traditional upfront stamp duty or an annual property tax. Find out about eligibility and what is the right option for your circumstances here.
The Power Up loan is Athena's variable rate online home loan with a 100% offset account.
A variable rate home loan that keeps it simple, Athena's Straight Up home loan has competitive rates and doesn't have an offset account.
Check out the rates, fees and features of Athena's fixed rate home loan.
Aimed specifically at new borrowers buying established property, Bendigo Bank’s Express Home Loan is a simple, online loan with a lower rate.
Whether you’re an investor or an owner occupier, Hume Bank has variable rates for borrowers with deposits of as little as 5%
Sign up for our FREE 8-week course to get on the property ladder.
Get a home loan with a low deposit.
Pay less for your home loan with a super-low interest rate.
Save on your investment loan with these hot offers.
Hi. I just wanted to know is there any reason why Reduce home loans are no longer on your home loan comparison site ?
Hi Dash,
You can compare rates from Reduce home loans on this page.
I hope this helps.
Kind regards,
Richard
how can I get lown
Hi Hugo,
You can apply for one of the loans on this page by clicking the green button that says ‘Go to site’. Once you arrive at the lender’s site, you should have all the information you need to apply.
Cheers,
Sarah
I have a house that is located in Perth WA and the mortgage is fixed for 2 more years. I would like to change to a lender that is offering less than 3% as the fixed rate of 4.5% can you advise me the safest way to go? mortgage is approximately $160,000 on a 3 year old new home 4 x 2
Hi Rix,
Thanks for getting in touch!
You may refer to our complete guide to refinancing your home loan to know how to get started. You can also refer to our list of refinancing home loans to compare your options. Our table should allow you to compare the features and benefits of each loan provider such as max loan rate, interest and etc. This way it will be easier for you to see which provider fits you best. Banks like HUME, Virgin, and Ubank offer interest rates of less than 3%. If you need further help, a quick guide on how to compare home loans is also stated on the page.
A mortgage broker is the best person to reach out to see your options for refinancing. They can give you a multitude of options according to your situation. In the meantime, to give you an idea of how your monthly repayments will go, you may use our home loan calculator.
As a friendly reminder, carefully review the eligibility criteria of the loan before applying to increase your chances of approval. Read up on the terms and conditions and product disclosure statement and contact the bank should you need any clarifications about the policy.
Hope this helps and feel free to reach out to us again for further assistance.
Best,
Nikki
I have been looking into refinancing my property, but as it’s an acreage (60 ha), no lenders seem to be interested in me.
Hi Ian,
Thank you for getting in touch with Finder.
There are lenders from our rural or hobby farm home loans guide. You can compare your options using our comparison table. When you are ready, press the ‘Go to site’ button to apply. You can also seek professional help from a mortgage broker since you’re having a hard time finding the right bank/lender.
Before applying, please ensure that you meet all the eligibility criteria and read through the details of the needed requirements as well as the relevant Product Disclosure Statements/Terms and Conditions when comparing your options before making a decision on whether it is right for you. You can also contact the provider if you have specific questions.
I hope this helps.
Thank you and have a wonderful day!
Cheers,
Jeni
I have just paid off my house worth approx $800-850k. I am looking at ways besides dying to assist my two children into getting into a property. Can you expand on the family pledge home loan as they both have not got a deposit or another product in which I can assist with them getting into the property market?
Thanks.
Hi Keith,
Thank you for getting in touch with Finder.
You can assist your kids to get a deposit together. For example, the child saves 5% or 10% of a property’s value, and the parent can use the equity in their house to cover the other 10-15%. The child pays back the whole loan (including the amount guaranteed by the parent). Once the parent’s part of the deposit is repaid by the child, the parent/guarantor is usually free from any other debt even if the child can’t repay the rest. But the big risk is if the child can’t repay the loan (including deposit) the parent/guarantor may have to repay it.
Please refer to our guarantor home loans guide for more details and to compare your options.
I hope this helps.
Thank you and have a wonderful day!
Cheers,
Jeni