![\"\"](\"http:\/\/internal.clientcommunity.com.au\/uploaded\/level\/moreimages\/houseyes.jpg\")
<\/p>\nWhen looking for a good deal on a home loan (mortgage), the interest rate matters. A home loan is a long-term debt, so even a small difference in interest adds up over time.<\/p>\n
Home loans come with different options and features. These can offer flexibility or let you pay off your loan faster. Some options could cost you more, so make sure they’re worth it.<\/p>\n
<\/p>\n
Most people get this type of home loan. You make regular repayments on the amount borrowed (the\u00a0principal, plus you pay interest on that amount. You pay off the loan over an agreed period of time (loan term), for example, 25 or 30 years.<\/p>\n
For an initial period (for example, five years), your repayments only cover interest on the amount borrowed. You aren’t paying off the principal you borrowed, so your debt isn’t reduced. Repayments may be lower during the interest-only period, but they will go up after that. Make sure you can afford them. See\u00a0interest-only home loans<\/a>.<\/p>\n Your loan term is how long you have to pay off the loan. It impacts the size of your mortgage repayments and how much interest you’ll pay.<\/p>\n A shorter loan term (for example, 20 years) means higher repayments, but you’ll pay less in interest.<\/p>\n A longer loan term (for example, 30 years) means lower repayments, but you’ll pay more in interest.<\/p>\n An interest rate even 0.5% lower could save you thousands of dollars over time.<\/p>\n Choose your loan and repayment types to see the average interest rate for new home loans in September 2020<\/p>\n Loan type Owner occupier Investment<\/p>\n Repayment type Principal and interest Interest only<\/p>\n Avg interest rate September 20202.62%<\/p>\n Weigh up the pros and cons of fixed and variable interest rates to decide which suits you.<\/p>\n A fixed interest rate stays the same for a set period (for example, five years). The rate then goes to a\u00a0variable interest rate, or you can negotiate another fixed rate.<\/p>\n Pros:<\/strong><\/p>\n Makes budgeting easier as you know what your repayments will be.<\/p>\n<\/li>\n Fewer loan features could cost you less.<\/p>\n<\/li>\n<\/ul>\n Cons:<\/strong><\/p>\n You won’t get the benefit if interest rates go down.<\/p>\n<\/li>\n It may cost more to switch loans later, if you’re charged a\u00a0break fee.<\/p>\n<\/li>\n<\/ul>\n A variable interest rate can go up or down as the lending market changes (for example when official cash rates change).<\/p>\n Pros:<\/strong><\/p>\n More loan features may offer you greater flexibility.<\/p>\n<\/li>\n It’s usually easier to switch loans later, if you find a better deal.<\/p>\n<\/li>\n<\/ul>\n Cons:<\/strong><\/p>\n Makes budgeting harder as your repayments could go up or down.<\/p>\n<\/li>\n More loan features could cost you more.<\/p>\n<\/li>\n<\/ul>\n If you’re not sure whether a fixed or variable interest rate is right for you, consider a bit of both. With a partially-fixed rate (split loan), a portion of your loan has a fixed rate and the rest has a variable rate. You can decide how to split the loan (for example, 50\/50 or 20\/80).<\/p>\n Home loans with more options or features can come at a higher cost. These could include an\u00a0offset account,\u00a0redraw or\u00a0line of credit facilities. Most are ways of putting extra money into your loan to reduce the amount of interest you pay.<\/p>\n For example, suppose you are considering a $500,000 loan with an offset account. If you’re able to keep $20,000 of savings in the offset, you’ll pay interest on $480,000. But if your offset balance will always be low (for example under $10,000), it may not be worth paying for this feature.<\/p>\n When comparing loans, consider your lifestyle and what options you really need. What features are ‘must-haves’? What are ‘nice-to-haves’? Is it worth paying extra for features you may never use? You may be better off choosing a basic loan with limited features.<\/p>\n Be realistic about what you can afford. If interest rates rise, your loan repayments could go up. So give yourself some breathing room.<\/p>\n Use our mortgage calculator<\/a><\/p>\n Work out your home loan repayments and compare different rates.<\/p>\n With the amount you can afford to borrow, compare loans from at least two different lenders. Check the loan interest rates, fees and features to get the best loan for you.<\/p>\n Comparison websites can be useful, but they are businesses and may make money through promoted links. They may not cover all your options. See\u00a0what to keep in mind when using comparison websites<\/a>.<\/p>\n<\/p><\/div>\n Compare these features:<\/p>\n Interest rate<\/strong>\u00a0(per year)<\/strong><\/p>\n<\/td>\n interest rate advertised by a lender<\/p>\n<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n Comparison rate<\/strong>\u00a0(per year)<\/strong><\/p>\n<\/td>\n a single figure of the cost of the loan \u2014 includes the interest rate and most fees<\/p>\n<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n Monthly repayment<\/strong><\/p>\n<\/td>\n how much you’ll have to pay each month on a loan<\/p>\n<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n Application fee<\/strong><\/p>\n<\/td>\n one-off payment when starting a loan, also called establishment, up-front or set-up fee<\/p>\n<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n Ongoing fees<\/strong><\/p>\n<\/td>\n fees charged every month or year for administering a loan, also called service or administration fees<\/p>\n<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n Loan term<\/strong><\/p>\n<\/td>\n length of time a loan lasts<\/p>\n<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n Loan features<\/strong><\/p>\n<\/td>\n such as\u00a0offset account,\u00a0redraw or\u00a0line of credit, and their fees (for example to redraw money)<\/p>\n<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<\/table>\n With many lenders to choose from, you may decide to get a mortgage broker to find loan options for you. See\u00a0using a mortgage broker<\/a>\u00a0for tips on what to ask your lender or broker.<\/p>\n Mai and Michael get the best deal on a home loan<\/p>\n Mai and Michael are looking to buy a $600,000 apartment. They’ve saved a 20% deposit and want to borrow $480,000 over 25 years.<\/p>\n They check a comparison website to compare:<\/p>\n interest rates \u2014 variable versus fixed<\/p>\n<\/li>\n fees \u2014 application fee, ongoing fees<\/p>\n<\/li>\n features \u2014 basic versus extra (redraw facility, additional repayments)<\/p>\n<\/li>\n<\/ul>\n Ticking different boxes on the website, they look at loan options to see how the cost varies. Given interest rates are low, they decide to go with a variable rate. Plus they want to be able to make additional repayments. Using these as filters, they review loan options.<\/p>\n They repeat the process with another comparison website.<\/p>\nGet the shortest loan term you can afford<\/h3>\n
Aim for the lowest interest rate<\/h3>\n
Check the average interest rate<\/h3>\n
Fixed interest rate<\/h3>\n
\n
\n
Variable interest rate<\/h3>\n
\n
\n
Partially-fixed rate<\/h3>\n
Mortgage features come at a cost<\/h3>\n
Weigh up if features are worth it<\/h3>\n
Avoid paying more for ‘nice-to-have’ options<\/h3>\n
Work out what you can afford to borrow<\/h3>\n
\nCompare home loans<\/h3>\n
\n\n
\n \n \n \n
\n \n \n \n
\n \n \n \n
\n \n \n \n
\n \n \n \n
\n \n \n \n
\n \n \n \n
Using a mortgage broker<\/h3>\n
\u00a0Case Study\u00a0<\/h3>\n
\n\n\n\n