Best Home Loan Interest Rates In 2024

The average Aussie will borrow around $600,000 to buy a home they plan to live in or build. Taking out a mortgage requires repaying the loan amount, plus interest, over an agreed period of time—typically 25 to 30 years. That’s a hefty financial commitment.

Choosing a home loan product with a low interest rate helps reduce the size of your debt over the life of your mortgage. Paying down your debt includes covering costs including:

• The amount you borrowed originally, called the principal.
• The interest you owe, which is calculated as a percentage of the principal amount. Changes in the interest rate can have a big impact on the interest you’ll pay. As the balance of your loan gets smaller, you’ll pay comparatively less interest.
• Ongoing fees, such as annual fees, monthly service fees, or charges associated with making extra payments or withdrawing money from an offset account.

But it’s not as simple as finding the loan with the lowest rate. The ‘best’ rate available to you will also depend on your needs and loans you can successfully apply for. The criteria used by different banks and lenders to gauge your eligibility can be critical.

Senior credit adviser at Shore Financial and winner of three ‘Broker of the Year’ industry awards in 2022, Christian Stevens, said that these days, all lenders were competitive and finding the best home loan option came down to people’s specific objectives.

“Most banks are offering the same products, bank policy and interest rates are more important when selecting a lender,” Stevens said.

“There are usually only a couple of additional features available to clients once we have found three to four best lenders for their scenario.”

Mortgage broker and director at Birdie Wealth, Natalie Denyer, who was included in Mortgage Professionals Australia’s list of ‘Elite Women’ in 2022, said it was helpful to shortlist lenders based on your priorities until you have four or five options, and then shortlist again based on the best rate.

“So for example, if somebody comes in and they’re going to go for the First Home Guarantee, where they can borrow up to 95%, then we’re limited to a certain amount of lenders,” Denyer said.

Denyer said the increased cash rate had reduced borrowing capacity considerably, with banks adding a 3% buffer when assessing serviceability—meaning banks offering a 6% rate want to know that you can afford repayments if the rate rises to 9%.

“We have some single first-home buyers struggling to find suitable properties within their budget, this sometimes means having to compromise on the number of bedrooms, the age and quality of the property, or the suburb,” she said.

Denyer said some borrowers might prioritise borrowing power—giving preference to lenders willing to offer a larger loan—at the expense of a low rate.

Understand your Needs and Borrowing Power

Loan products likely to match your needs and eligibility will vary based on:

• Your principal amount: Some loans will have minimum and maximum borrowing limits. Generally speaking, borrowing more gives you access to better rates. Christian Stevens said: “The larger the loan the more negotiating power you have.”
• The size of your deposit: The gold standard for borrowers is to have 20% of the property’s value in savings. That puts your loan-to-value ratio (LVR) at 80%. In other words, you’re borrowing 80% of the total value of the property price—which is the minimum required by many lenders. Loans that allow an LVR above 80% may come with a higher rate as they would be considered riskier. Borrowers with a high LVR may also be required to pay lenders mortgage insurance (LMI) or another ‘risk fee’ that’s absorbed into the loan amount.
• The purpose of the loan: Rates for people buying or building a home they plan to live in are generally lower than rates offered to property investors.
• Your ability to repay the loan: Known as ‘serviceability’, banks take a close look at your income, expenses, and credit history to determine if you can afford the loan. Denyer said different lenders have different yardsticks: “Some banks will use the most recent year for a self-employed person, whereas others will average. Also, if we’re wanting to include family tax benefits or child support payments, some banks have an age cutoff of 11, some will go to 14.”

Mortgage stress triggered by recent economic events has created a serviceability dilemma for people looking to switch to a better home loan rate, Denyer tells Forbes Advisor Australia.

“We’ve also had clients trapped in what the industry is calling ‘mortgage prison’ where they are unable to refinance their current home loan to a lower rate because they can’t show evidence that they can service the loan amount they already have,” she says.

“Luckily some banks have introduced a 1% assessment rate for refinancing rather than assessing 3% higher than the actual rate and this is helping more people refinance on to lower rates.”

She said another solution was to extend the loan length to 30 years.

“Which is not ideal as we all want to be debt free by retirement, but stretching the loan back to a longer term with a lower rate reduces the repayments and is worth it if it means being able to hold on to the property while the rates are high—plus they have the ability to make additional repayments to catch up.”

Rates offered by banks and other lenders will vary based on product types and repayment options. Below we define some commonly used terms:

Principal and Interest Loan

Most people choose a loan where their regular repayments cover a portion of both the principal and the interest, so the rates on these loans can be more competitive. With a principal and interest (P&I) loan, each payment chips away more of your principal amount helping you pay off your debt sooner. Although interest rates may vary throughout your mortgage, interest is still calculated as a percentage of the principal amount owing—so over time, a smaller principal balance also reduces the interest charged.

Interest Only Loans

Some borrowers may prefer a repayment option where they focus on only paying off the interest (plus fees) component of their loan for a set time, typically between one and five years. Compared to a P&I loan, the rate offered for an interest only option tends to be higher. Because you’re not building equity in your home during the interest-only period, you’ll also pay more interest over the life of the mortgage. However, interest only can be an attractive option for property investors or people on very tight budgets who expect to be able to afford higher repayments in future.

Owner-Occupier Loans

You need to specify the purpose of your loan when you apply and you’ll likely get a better rate if your home loan is for a property you plan to live in. Owner-occupier loans also tend to have a higher maximum LVR, which is better for first home buyers struggling to save a deposit. Keep in mind, you’ll need to let your lender know, and possibly refinance, to avoid penalties if you change your mind and decide to rent our your property.

Investor Loans

Australia’s banking regulator considers investor loans riskier and requires lenders to hold more capital as a buffer when lending to investors. That means loans to buy an investment property will usually have a lower maximum LVR (e.g., you need a bigger deposit) and result in a higher interest rate. Many investor loans include an interest-only payment option, enabling investors to free up cash flow and potentially take advantage of negative gearing—where investors can claim a tax deduction if the cost of owning a property (for e.g., interest payments) is more than the rental income.

Variable Home Loan

A variable rate loan is one where the interest rate charged varies, which means your repayment size increases or decreases accordingly. Variable rates are adjusted by lenders based primarily on the official cash rate set by the RBA, the lenders’ costs of funding, and market competition. Variable rates can change at any time determined by a lender. Variable rate home loans are more likely to be packaged in ways that give borrowers more features and flexibility—such as offset accounts, the ability to make unlimited extra repayments and redraw funds, and linked credit cards.

Fixed Home Loan

A fixed rate home loan locks in a specific interest rate for a period of around one to five years. The beauty of a fixed rate is that you know exactly how much interest you’ll be charged and can budget for your mortgage repayments with certainty. The downside is, you’re stuck on that rate even when variable interest rates drop significantly. Fixed rate loans usually have tight limits on making extra repayments, and no offset accounts or ability to redraw funds from your mortgage.

Split/Blended Loan

Some lenders allow you to divide your loan amount into two portions: with some subject to a fixed rate and some on a variable rate. You might do a 50/50 split or put the majority onto a fixed rate when the rate on offer is especially low. Splitting your loan offers flexibility but may lead to additional account-keeping fees.

Basic versus Package Loans

Lenders may offer a standalone ‘basic’ home loan, or a ‘package’ that essentially bundles together a range of banking features under one annual fee—including your mortgage accounts, savings accounts, credit cards and perhaps personal loans. Consolidating your banking with one lender can be more convenient and potentially cost-effective, and a package loan may also come with a discounted interest rate (compared to a basic option from the same lender).

While it varies from lender to lender, features generally included in a package include:

• Multiple offset accounts. Offset accounts are essentially savings accounts linked to your mortgage account. The money in offset accounts is counted as part of your principal balance when the interest you owe is calculated by a lender. That means your loan repayments are reduced, but you can still access your savings day-to-day.
• Variations to your loan conditions without fees, e.g., changing the percentages of your split loan.
• A linked credit card with no annual fees.

Forbes Advisor has scoured the market to find the following top eight deals for owner-occupiers, refinancers, and investors featuring a mix of lender types and variable and fixed rate loans. When it comes to the best home loan, one size does not fit all—but these products give borrowers a good sense of what competitive products look like.

Note: The below list represents a selection of our top category picks, as chosen by Forbes Advisor Australia’s editors and journalists. The information provided is purely factual and is not intended to imply any recommendation, opinion, or advice about a financial product. Not every product or provider in the marketplace has been reviewed, and the list below is not intended to be exhaustive nor replace your own research or independent financial advice. For more information on how Forbes Advisor ranks and reviews products, including how we identified our top category picks, read the methodology selection below.

Understanding your borrowing capacity and the type of loan that suits your purpose or preferred repayment method is a good starting place when you start exploring the wide range of lenders, products and offers in the Australian market.

Additionally, key components of a particular loan that you should assess:

• Does it come with the features you need? For example, if you’re choosing a variable rate loan, do you need offset accounts? Does it allow you to split your loan?
• How much are you paying for extra features? For example, you might be able to get a lower interest rate on a loan product that has a free redraw facility (the ability to withdraw money from your mortgage that you’ve made in extra repayments) but no offset accounts.
• Are the sign-up bonuses worth it? Some loans may waive establishment fees or include cash-back offers as a way to lure borrowers and refinancers. You need to carefully calculate the long-term gains compared to the short-term boost.
• Is the interest rate good when you factor in all costs and savings? The interest rate alone doesn’t tell you how much it will cost to pay down your debt. When you’re researching different products, you’ll see a comparison rate listed next to the rate the lender is offering, which factors in some of the predictable product fees (but not all fees). Furthermore, the comparison rate does not account for any savings you’ll make by leveraging features such as an offset account that reduces your interest. In other words, do your own sums.
• What loan application processes does a lender offer? For instance, can you get pre-approval and how long does the pre-approval last for? If you’re looking at a fixed-rate product, does the lender offer a ‘rate lock’ that lets you secure the best rate from when you apply to when you purchase a home (regardless of whether a lender increases rates in that time).

Beware the Fees

As well as the up-front costs of buying property such as stamp duty and paying professionals to draw up contracts and transfer the title, you may face one-off fees from lenders. This includes application fees, account establishment fees, property valuation fees, and lenders mortgage insurance (LMI) if your deposit is below 20% of the property value.

Other ongoing fees can include:

• Monthly or annual account fees
• Monthly service fees
• Fees for using a redraw facility
• Late payment fees
• Loan variation fees

Once you find a loan (or multiple loans) you’re interested in, deep dive into the specific terms and conditions and fees associated with said product/s.

Remember too, fixed rate loans are less flexible than variable rate loans. When you choose a fixed rate loan, you may incur fees for making additional repayments, paying off the loan early, or switching to a variable rate loan. Differences in fees may be a deciding factor when you’re comparing multiple loan products.

Variable, Fixed or Split Loan?

One of the toughest choices when comparing loans is whether to opt for a fixed or variable rate, or the percentage to assign to either for a split loan.

It’s essential to factor in your ability to keep servicing your loan in a rising rate environment—like the one Australia is currently experiencing. Within the past two decades, Australia’s cash rate has risen above the current 4.35% on multiple occasions and gone as high as 7.25%.

Many Australian borrowers who locked in a fixed rate loan in 2019-21, when the cash rate was at record lows, are now exiting their fixed rate terms. That means they’re suddenly subject to current variable rates, resulting in a steep increase in their monthly repayments. In what has been described as a ‘mortgage cliff’, an estimated 90% of borrowers whose fixed rate expires this year will face repayment spikes of at least 30%.

People with a buffer—gained through making additional repayments or by growing their savings—are better equipped to cushion the blow.

Denyer said that when rates were historically low, it was a “no brainer” for many of her clients to split their loans on a packaged product. Doing so enabled borrowers to park most of their mortgage on a low fixed rate, with a smaller percentage on a variable rate that they could “attack” by making additional repayments.

However, in current conditions with fixed rates generally higher, she said more people were considering basic variable loans.

“People want to be able to ride the wave back down if the interest rates start to drop off,” Denyer says.

For those willing to gamble on fixed, she recommends thinking about splitting the loan so you can make extra repayments and access an offset account on the variable portion.

Stevens said that around 75% of the market was already on a variable rate, with up to 10% rolling off fixed rates last year.

“With interest rates forecast to drop in the near future, 99% of our clients are looking at variable interest rate options,” Stevens said.

“A very small number opting for one year fixed or a loan split—depending on their personal situation.”

Related: Will Interest Rates Go Down In 2024?

In Australia, the majority of home loans are financed by well-known financial institutions including the ‘Big Four’. However, there are many smaller banks and non-bank lenders that continue to grow their customer bases through a more nimble, self-service approach or member-based benefits.

Most lenders fall into the following categories:

• Big Four Banks: Commonwealth Bank, ANZ, Westpac and NAB.
• Challenger banks or International Banks: Large competitors of the big four, like ING, Macquarie Bank, Bendigo Bank and Suncorp as well as Australian branches of global players, such as HSBC.
• Online lenders: So-called because they don’t have traditional physical branches you can visit and typically offer streamlined online application processes without in-person guidance. Online lenders are backed by funders, including big banks.
• Mutual or Credit Unions: Customer-owned and member-based banks that typically reinvest profits into the organisation rather than paying dividends to shareholders. Customer-owned banks may only serve a specific state or region, and you may need to sign-up as a member.

Denyer said that being loyal to a bank where you’ve previously done your personal banking can backfire, because banks may keep your rate higher thinking you’re not going anywhere.

“It’s really frustrating because the banks will offer a lower rate in most circumstances to a new bank customer than their existing customers,” she said.

Stevens said that smaller lenders often offer the best interest rates, and that nowadays his customers were much more open to exploring options.

“When I started it was mainly the big four banks that were a preference, but my clients are happy to proceed with their best option—regardless of the lender,” Stevens says.

Related: Calculate Your Mortgage Repayments

Stevens said more than 70% of Australians turn to an experienced mortgage broker to find the best home loan option for them.

“We provide detailed product comparisons for all clients that show all associated fees/costs involved with each lender,” he said.

Stevens said brokers made it easier for people to remain on the best rate by considering refinancing, and the true value of offers like cash-backs.

“We would always do a monthly/annual saving table for clients to show how much they can save by refinancing without the cash back. Then we add the relevant cash back offer at the bottom so clients can make an educated decision themselves, knowing what their options are.”

Similarly, Denyer said Birdie Wealth reviews clients’ loans every six months, and approaches banks to renegotiate rates, or explore alternative loans that may be worth the hassle and cost of switching lenders.

Denyer said the report provided for her new clients would include a recommendation for a loan based on the person’s priorities. For instance, if somebody has already found a property or is bidding at an auction, the recommended loan might be with a lender with faster turnaround times.

“That could be a deciding factor as to which bank we choose because I guess ultimately while price is important—and especially right now, everybody’s stressed about that—if you miss out on the property because the bank was too slow, or because their policy doesn’t quite suit and you couldn’t borrow the maximum amount, then who cares about the slight difference in interest rate?

“Whereas when you’re refinancing that’s more important to get the right rate, because that’s the whole purpose of refinancing is to try and save some money.”

What are the cons of using a broker?

Obviously, brokers need to get paid, whether that’s through a service fee or more likely a commission paid by lenders. It’s wise to get clarity about how your broker gets paid, if certain lenders offer higher percentage commissions, and how commissions are structured (e.g., upfront or trailing?).

It’s also important to note that brokers do not assess all loans on the market. They work with a varying diversity of lenders—what they call their panel. If you’re interested in a particular lender, look for a broker with access to that lender’s products.