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Cheap Home Loans

Here’s help to find the cheapest home loan available – everything you need to know from the cheap home loan comparison expert Savvy

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, updated on August 7th, 2023       

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Finding a cheap home loan can potentially save you tens of thousands of dollars over the life of your loan and, with the arrival of a multitude of new online lenders into the home loan market, your cheap home loan options are improving all the time.

You can compare some of the best loan options available right here with Savvy. Learn about how you can make different loan features work for you and find handy tips for comparing offers in the market to find a cheap home loan that best suits your needs.

How do I find a cheap home loan?

When you’re shopping around for a mortgage, you’ll notice that loans with the lowest fees don’t always have the lowest interest rate.  So, what should you prioritise when looking for a cheap home loan – no fees, a lower interest rate or additional interest-saving features?

Start with a loan’s comparison rate

Start by comparing the loan’s comparison rate, which combines the interest rate and all loan fees into one number (expressed as a percentage) to give you the clearest picture of what your loan will really cost you.  Displaying a comparison rate is compulsory for all Australian lenders under the National Credit Code.

All comparison rates are based on a $150,000 loan taken out over 25 years.  By using this standard comparison ‘yardstick,’ it’s possible to measure how any loan fees or charges will affect the loan you’re after. It’s an easy way to compare loans and see who is offering the cheapest home loans overall.

Consider the best type of rate for you

Look around before deciding whether to go for a variable, fixed or split interest rate home loan to ensure you get the cheapest deal.

Variable rate loans are the most popular type of loan in Australia and traditionally offer the cheapest interest rate.  The interest you pay will vary depending on the current RBA cash rate.  However, there are currently some very competitive fixed interest rate loans available too, where you lock in a set interest rate for a specified number of years (usually 1-5 years). The rate type which is best for you will vary depending on the situation: if rates are expected to rise and are at rock-bottom, you may benefit from fixed interest, but when rates are set to fall, you’ll benefit from variable interest.

One solution to the choice between these options is to ‘split’ your loan into two parts: one on a variable rate, the other on a fixed rate.  This combination gives you repayment flexibility and cushions you from interest rate rises all at the same time. This type of split loan is becoming increasingly popular.

Decide which additional loan features you need

If you’re looking for the cheapest home loan, you probably don’t want to pay for extra features you may not use.  However, some features can save you tens of thousands of dollars, depending on how you use them.

Extra repayments

Not all home loans allow you to make additional repayments, but having this option could potentially save you a significant amount. 

The chart below outlines how just a small additional repayment per week (as little as $10 per week) can save you thousands and help you pay off your home loan sooner.  The higher your additional repayments, the more you can save.

Loan amount Additional repayments Repayments per month Loan term Total interest paid Amount saved
$500,000*
-
$2,002
30 years
$220,611
-
$500,000 *
$40 a month
$2,042
29 years 2 months
$213,459
$7,153
$500,000*
$200 a month
$2,202
26 years 1 month
$189,059
$31,553

*Assuming an interest rate of 2.6% p.a.

Making additional repayments is one real and powerful way to save money in interest over the life of your loan.

Offset accounts

If you’re after flexibility, look for a home loan with an offset account attached.  You can make an offset account work like a savings account, sitting in the background saving you money.

You can deposit money into, and withdraw funds from, your offset account at any time, so you can use it like a debit card.  However, all the money in your offset account reduces the amount of interest you pay on the principal of your loan.  All the while money sits in your offset account, it offsets your home loan.

For example, if you have a mortgage of $500,000 but have $20,000 in your offset account, you’ll only pay interest on $480,000.  If you use your offset account to have your wages paid into, and park any other savings in there too, the amount you could save adds up into the thousands over the years.

 No loan break costs

One of the best ways to keep your mortgage costs low is to keep on top of changing interest rates and be prepared to refinance with another lender or renegotiate with your current lender to potentially save a lot of money.

Variable-rate home loans are generally very flexible and there are no penalties for breaking the loan agreement.  Fixed-rate loans, on the other hand, lock you in for a set period. If you break the contract early, you may be liable to pay early exit fees, which can be very costly and can add up to thousands of dollars depending on the time left to run.

Avoiding break costs gives you the flexibility to refinance your loan to a better interest rate at frequent intervals and gain access to useful features not present on your current mortgage.  This could save you thousands by ensuring you’re always taking advantage of the cheapest interest rates and best features on offer. 

Think before you redraw

Some loans offer the ability to redraw any additional repayments you’ve made on your loan in the form of a lump sum.  This may be because you want to renovate your kitchen – or suddenly need a new car.  Although using the additional amount you’ve paid into your loan may be a cheap option to get hold of a lump sum fast, it does mean you’ll again extend the life of your loan and so lose any interest savings you’ve built up.

Top tips for getting the cheapest home loan

Provide as much deposit as possible

The larger deposit you can put forward, the smaller the loan you’ll need and the less interest you’ll pay.  If you can provide more than a 20% deposit, you’ll not only be eligible for some of the cheapest home loans around, but you’ll avoid paying Lenders Mortgage Insurance (LMI) too.  Remember, you can sometimes use your existing home equity in place of a deposit.

If don’t have a 20% deposit, apply with a guarantor to save LMI

Another way to avoid paying LMI is to apply with a guarantor.  This is usually a family member, such as a parent or grandparent, who is prepared to offer a guarantee to the lender that they will be responsible for your loan if you’re unable to make repayments.

Consider package deals to bundle your credit cards, transaction accounts and home loan

Many lenders are now offering very low interest rate loans to customers who agree to ‘bundle’ all their financial services together.  As such, you may get a great home loan deal if you agree to have your credit cards, everyday banking accounts and even home and car insurance under one roof.

Don't be seduced by introductory rates – look at the bigger picture

It may be tempting to go for a loan with a low introductory interest rate, but you need to ask yourself if it really is the cheapest loan in the long run.  Look at the comparison rate the loan reverts to when the ‘honeymoon’ period is over to see the big picture.

Pay P&I from the start to pay off your loan sooner

Principal and interest (P&I) home loans are the most common and involve paying off your loan amount with interest from the beginning.  It may be tempting to take out an interest-only (IO) loan instead for lower repayments.  However, this means the amount you owe is not reducing throughout the interest-only period and you’re paying more interest overall.

Make lump-sum repayments frequently to save on interest

If you suddenly receive unexpected additional income, such as a raise at your job or an inheritance, make your money work harder for you by using it to make additional repayments off your home loan.  By more steeply reducing the amount owed on your home loan, you can potentially slash the interest and fees paid overall by thousands of dollars.

Frequently asked questions about cheap home loans

Which lenders offer the cheapest home loans?

In Australia, people used to approach their regular bank when they wanted a home loan, but the home loan market is growing and ever-changing. These days, there are less expensive and more flexible options than the major banks.  If you’re prioritising a cheap home loan, it pays to shop around and compare with Savvy. We list and contrast the latest up-to-date offers to ensure high-quality comparisons for you.

Are lenders who offer cheap home loans safe?

Yes – all lenders in Australia are subject to strict credit regulations and can be ruled upon by the Australian Securities & Investments Commission (ASIC) if they’re found to be engaging in misleading or deceptive conduct.

Why can online lenders offer cheaper loans than the big banks?

Online lenders don’t have the bricks and mortar overheads the big banks do, and in many cases, they don’t have shareholders to keep happy either.  With a leaner organisational structure, online lenders can translate those savings into lower fees and interest rates.

Can first homeowners get cheap home loans?

Yes – first home buyers can find cheap home loans, especially if a ‘no-frills’ basic variable home loan is chosen.  Remember, it’s always possible to refinance at a later date if you want to add an offset account or make additional repayments.

Will opting for a shorter home loan term make it cheaper overall?

It can – if you decide to take on a shorter loan term you’ll pay less interest, as your loan will be paid off sooner.  Reducing your loan from 30 years to 25 years can save you thousands, although it will mean your repayments are higher.

Are there any cheap home loans with low-deposit requirements?

Yes – it is still possible to get a cheap home loan even though you may have less than a 20% deposit.  Low-deposit loans, also known as high loan-to-value ratio (LVR) loans, are often aimed at first homebuyers and usually come with low to moderate flexibility and features.

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