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.— Richard Whitten, Money editor
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% | 5.99% |
|---|---|---|
| Loan amount | $610,286 | $610,286 |
| Loan term | 30 years | 30 years |
| Monthly repayment | $4,168 | $3,656 |
| Monthly saving | N/A | $512 |
| Annual saving | N/A | $6,144 |
As you can see, with the lower interest rate, you save $512 a month – or $6,144 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 05 December the official cash rate was held at:
4.35%
The lowest owner-occupier loan in Finder’s database is:
5.97%
Assuming the average owner occupier home loan size of $610,286 you would be making monthly repayments of:
$3,581
The average loan amount for a first home buyer reached a record high in October 2023, increasing by 4.1% from the same month the year before. First home buyers borrowed an average loan of $507,488, reflecting how high property prices are affecting those wanting to get onto the property ladder.
It’s understandable then that Australians are feeling pessimistic about the prospect of owning a home. According to Finder’s Consumer Sentiment Tracker (CST) in December, Australians expect it will take them 8 years to own a home. At the start of 2021, the expectation was a more positive 5.5 years.
A year and a half of rising interest rates can’t have helped the situation, either.
Luckily, economists are predicting that rates may begin to fall towards the end of this year: Commonwealth Bank’s economists are predicting as early as September.
Graham Cooke heads up Finder's insights team, which is responsible for conducting data-driven research. He also regularly appears on TV and radio, taking part in more than 500 interviews to discuss financial news and trends.
Right now, variable rate loans are a little 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 | 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:
How to accurately estimate the cost of building your own house.
Chris Gray takes us through four things people get wrong when buying property.
Auction expert Damien Cooley gives the lowdown on why property auctions are the best way to sell right now.
Richard Holden from UNSW Business School delves into Australian home loan sizes and rate cuts
We can't make clear predictions about Sydney's property market, but here's what the data suggests.
If you're buying a home from your parents below market value, there are a few details you need to know to make sure you're getting a good deal.
There's profit to be made in renovating your home, but don't jeopardise your insurance when you do.
If you’re having trouble securing a home loan through traditional means, there are some government programs that might help you achieve your property goals.
Australians are now drinking less than we previously were. Find out how you could save $40,000 by simply not drinking alcohol.
Also known as a repayment holiday, a mortgage holiday is when you don't have to make payments for a short period.
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.
Good afternoon!
I am a small investor and have two rented properties. I am enquiring as to what the average percentage rate should be on a current loan please.
Hi Rexjay,
Thank you for getting in touch with Finder.
You may compare a range of investment home loans. On the page are a comparison table you can use to enter your loan amount and the loan term then click the ‘Calculate’ button to start comparing your loan options. As of this writing, the comparison rate starts from 3.99% to 5.35%.
I also suggest that you seek help from a mortgage broker since you’re looking for providers that offer the cheapest rate.
I hope this helps.
Thank you and have a wonderful day!
Cheers,
Jeni
A mortgage broker has suggested a home loan from a company called BlueBay – I have never heard of them before. Are you able to provide any information?
Thanks.
Hi Lee,
Thank you for getting in touch with Finder.
According to our guide on parent assist home loan, it is a product offered through a single Australian lender, Bluebay Home Loans.
I hope this helps.
Please feel free to reach out to us if you have any other enquiries.
Thank you and have a wonderful day!
Cheers,
Jeni
H! I need the following information concerning I to need to get $32.000.00 dollars. Is their anybody out there who can lend me money because I’m on new start allowance? I have an excellent credit score would I be able to get a cheap loan on 5 to 6 weeks at the most.I would appreciate a reply as soon as possible because this is really urgent.
Hi Norberto,
Thank you for your question.
I understand the situation you currently have and would advise you to check on loans for the unemployed. You may need to reach out directly to the lender to check what they consider as income during your application for the loan. Hope this helps!
Cheers,
Reggie
I have a $230,000 mortgage on a $900,000 house.
I also have a $600,000 inheritance coming when probate currently in progress settles.
Is there a lender who will give me a line of credit loan 0f $350,000 so I can pay off my present mortgage and have money until probate settles?
I am currently unemployed.
Hi Poida,
Thanks for your message.
Being unemployed may post risks or roadblocks when you apply for refinancing. Before putting in an application, it would best if you talk to a mortgage broker who can guide you in this process.
Cheers,
Nikki
Hi. I just wanted to know is there any reason why Reduce home loans are no longer on your home loan comparison site ?
Hi Dennis,
Thanks for leaving a question on Finder.
A reduce home loan is not a bank nor a lender. A reduce home loans is a licensed and regulated finance brokerage that sources home loans from a variety of Australian lenders. Because reduce home loans is an online-only business, it has low overheads and can offer lower rates. And because it can source funding from a variety of Australian lenders, it can offer competitive products to borrowers. The link above will redirect you to our review page for reduce home loans. On the page is a comparison table you can use to see which offer loan suits you.
Cheers,
Joel