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 | 7.26% | 5.8% |
|---|---|---|
| Loan amount | $607,963 | $607,963 |
| Loan term | 30 years | 30 years |
| Monthly repayment | $4,152 | $3,568 |
| Monthly saving | N/A | $584 |
| Annual saving | N/A | $7,008 |
As you can see, with the lower interest rate, you save $584 a month – or $7,008 a year.
Every month, we analyse the rates in our database to create a list of the market's cheapest loans.
On 24 September the official cash rate was held at:
4.35%
The lowest variable owner-occupier rate on the market is:
5.69%
Assuming the average owner occupier home loan size of $641,143 you would be making monthly repayments of:
$3,718
Right now, variable rate loans are a little higher than fixed rate loans. This is an indication that banks are expecting interest rates to start falling later this year and they are trying to entice customers to lock in a rate before that happens. 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.
"I wanted to make sure I have one of the cheapest home loans on the market. So I found an online lender with a consistently low interest rate (I should know, I check rates every month). But I also made the sure the loan had an offset account. For me, being able to build up savings in the offset account speeds up my loan and cuts down my overall interest charges dramatically. This makes the loan much cheaper in the long run."
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."
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 | 6.00% | 6.00% | 6.00% |
| Loan amount | $600,000 | $600,000 | $600,000 |
| Monthly repayment | $3,598 | $3,866 | $4,299 |
| Total cost* | $1,295,030 | $1,159,743 | $1,031,611 |
*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:
Home loan cashback deals can help you refinance to a cheaper interest rate and get a lump sum cash payment. Compare the latest deals and check your eligibility today.
Our comprehensive guide to home loan statistics.
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The tax benefits of a National Rental Affordability Scheme (NRAS) approved property may be tempting, but only if you can get finance first.
Working out how interest is calculated on a home loan can help you determine your repayment capabilities and how to pay it off sooner.
If you're receiving Centrelink payments you may be able to use them as part of your income when applying for a home loan.
If you haven't sold your house yet, but want to buy your next one before the sale is completed a bridging loan may be able to help. Read on to discover how bridging finance can help.
Self employed home loans can help small business owners get into their own home.
The length of your home loan is important because the longer the loan period, the more interest is paid over the life of the loan.
Low doc home loans allow you to get a mortgage if you're self-employed or don't have regular payslips. check your eligibility and compare competitive offers now.