When it comes to buying a home, securing the best interest rate can make a significant difference to your long-term financial health. A lower interest rate means you'll pay less over the life of the loan, freeing up money for other important things like home improvements, your future, or just enjoying a few more holidays.
With that in mind, here’s how you can get the best rate possible…
1. Understand what affects your home loan rate
Before you even start shopping for a home loan, it's important to understand the factors that can impact your interest rate. Factors such as:
Loan type
Different types of home loans come with different interest rates. Fixed-rate home loans typically have higher rates than variable rate home loans, but they offer the stability of consistent payment amounts.
The choice you make between the two types of loans will depend on your personal situation. Learn more about fixed rates and variable rates and how they compare.
Deposit
The more money you can put down when you take on the loan, the better the rate you’ll be eligible for. For instance, the larger your deposit the lower your loan-to-value ratio (LVR).
A down payment of at least 20% can also help you avoid paying Lender’s Mortgage Insurance (LMI), which adds to your overall loan cost.
Loan features
It’s not unusual for basic home loans to have a lower interest rate than those offering an offset account, the ability to redraw, a credit card, or the option to make extra repayments. If these features are important to you, then you’ll likely end up with a slightly higher interest rate.
The difference between redraw and offset is explained in this article.
2. Shop around for lenders
Not all lenders offer the same home loans or rates. It’s essential to compare the different options available to you from a variety of banks and lenders to identify the best offer for your situation. If you need help doing that, a mortgage broker can help.
Top tip! Don't just focus on the big banks when looking for a new loan. Sometimes local lenders (like P&N Bank) offer more competitive rates, as well as personalised service.
3. Consider the timing
Interest rates fluctuate over time, so timing can have a big impact on the home loan rate you receive. Rates tend to be lower when the economy is stable, while they can rise during periods of inflation or economic growth – like we’ve experienced in recent years here in Australia. Competition between banks and lenders can also impact the rates and home loan offers available, so staying informed about trends in the market is a good idea.
Being in-the-know can help you decide when to lock in a rate, when to opt for a variable home loan option instead, and possibly even when to refinance an existing loan.
4. Consider the total loan costs
While getting a low interest rate is important, it’s also crucial to think about the full cost of your home loan. When comparing your options, make sure you look at the comparison rate.
The comparison rate is always displayed next to the interest rate, and it’s calculated using that rate and any fees or charges associated with the loan. A low interest rate may be appealing, but monthly fees or annual charges can offset any savings over the life of the loan.
A word of caution for refinancers
Refinancing can be great for reducing the home loan interest rate you have, but it is possible that it could actually cost you more money over the long term – especially if you keep taking out loans with a 30-year term. Before you start the refinancing process, ensure you know the five refinancing mistakes to avoid.
As you can see, getting the best home loan interest rate involves more than just finding the lowest number on a comparison table. By understanding the factors above and making any changes you need to improve your financial situation, you’ll be well on your way to securing yourself a great home loan deal.
Here at P&N Bank we’re committed to helping you find the best home loan option to suit your needs. Whether you’re looking for your first home loan or to refinance an existing one, our home lending specialists can help you explore your options.
Important information
Banking and Credit products issued by Police & Nurses Limited (P&N Bank).
Any advice does not take into account your objectives, financial situation or needs. Read the relevant terms and conditions, before downloading apps or acquiring any product, in considering and deciding whether it is right for you. The Target Market Determinations (TMDs) are available on our website or upon request.