How home loan rates work
Each lender publishes many rates for the same loan. The rate you get depends on your deposit (the loan-to-value ratio, or LVR), whether the home is to live in or an investment, whether you repay principal and interest or interest only, and whether you fix the rate.
Rates for owner-occupiers repaying principal and interest with a deposit of 20% or more are usually the lowest.
Variable or fixed
A variable rate moves with the market and usually comes with more features, like an offset account and free extra repayments. A fixed rate locks in your repayments for 1 to 5 years, but can limit extra repayments and charge a break fee if you leave early.
Many lenders let you split the loan, fixing part and keeping the rest variable.
What to compare
Start with the rate for your situation: the rate a lender offers depends on whether you'll live in the home or rent it out, how you repay, and the size of your deposit. The comparison above picks each lender's rate for your choices.
Then look past the rate.
- Fees: upfront fees, and annual package fees that often come with an offset account.
- Features: an offset account, redraw, extra repayments and the option to split the loan between fixed and variable.
- The comparison rate, which adds standard fees to the rate for an example loan of $150,000 over 25 years.
- Any cashback, but only after the rate and fees, since a higher rate can cost far more over the life of the loan.
Lenders mortgage insurance
With less than a 20% deposit, most lenders charge lenders mortgage insurance (LMI). It protects the lender, not you, if you can't repay, and can cost thousands of dollars, either upfront or added to the loan. The cost depends on the property's value, the loan amount, the size of your deposit, and the lender's insurer.
LMI doesn't get you off the hook: if the home is sold for less than you owe, the insurer can still pursue you for the shortfall. You may avoid it with a guarantor, through a government scheme, or with a lender's waiver for some professions, such as doctors, lawyers and accountants. A mortgage broker can tell you which lenders take small deposits and how their LMI costs compare.
Before you apply
Lenders look at your income, your debts and credit limits, your spending and your credit history. Paying down cards and cutting card limits can raise how much you can borrow.
Pre-approval tells you what a lender may lend, so you can house hunt with a budget. Each application can show on your credit report, so compare first and apply to one lender at a time.