Mortgage Rates

Find out everything you need to know about your mortgage’s interest rate right here with Savvy.

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, updated on August 7th, 2023       

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Many factors determine how much it’ll cost you to own your home, but one of the main ones is the interest you pay on your mortgage. Naturally, borrowers want to pay as little interest as possible, so it’s important to find out how to access the lowest rates.

Read about the best mortgage rates and which factors affect what you may be offered right here with Savvy. We’re partnered with a variety of mortgage lenders, so we’ll help you understand how to get the very best interest rate on a loan that’s just right for you by comparing a range of offers.

What type of mortgage interest rates are available to me?

There are three basic types of home loan rate: variable interest rates, fixed interest rates and split home loans.

Repayments on a loan with a variable interest rate will change over time.  This type of loan is based on the cash interest rate set by the Reserve Bank of Australia, as well as individual lenders’ decisions to increase or lower their interest rates according to market competition.  They offer borrowers the most flexibility, as it’s usually possible to pay off a variable loan more quickly, make additional repayments, withdraw funds or link an offset account to a variable loan. 

A fixed rate, as the name suggests, is an interest rate fixed for a set period of usually one to five years.  They provide certainty for borrowers who may be on a tight budget, locking their rate in and ensuring their repayments stay the same for a sustained period.  Their disadvantage is a lack of flexibility – there are often early exit fees or financial penalties if a borrower wants to pay off a fixed rate loan early, and additional repayments or redraws frequently aren’t possible with this type of loan. 

A split loan, where a portion of the loan principal is on a variable rate, and another portion is fixed, offers borrowers the best of both worlds.  You can choose what percentage of your loan is fixed and what remains on a variable rate.  By using this feature, it’s possible to make extra repayments on the variable part of your loan, saving you money on interest, as well as enjoying the security of a lower fixed rate. You may find in some cases that splitting your loan will result in paying more account-keeping fees, but not all lenders charge these

What factors can affect my mortgage rate?

The mortgage interest rate a lender is prepared to offer you will be influenced by several factors, all revolving around the concept of risk.  In simple terms, the more risk you pose as a borrower, the higher interest will be charged.  Factors which will affect your interest rate include:

  • The type of borrower you are – first home buyer, refinancer or investor
  • The type of loan interest you’re after – either a fixed, variable or split interest rate
  • The term of the loan – how many years you’ll take to pay it back (up to 30 years). In general, the shorter the term, the lower the interest rate
  • What deposit you’re able to offer – the greater the deposit offered, the lower your rate may be. Many lenders will require 20% of the purchase price, but some can accept as low as 5%.
  • Your location – whether you’re buying in the middle of a large city or a more remote country location
  • The type of home you’re wanting to buy – whether it’s a unit, an apartment in a tower block, or a detached home

How does a loan’s mortgage rate affect the total interest paid?

Even the smallest of changes to the best mortgage rates can have a significant impact on the interest you pay overall.  For instance, a 0.5% p.a. interest rate difference will result in a very different outcome over the life of a home loan. 

You can see an example of this in the table below, which looks at loans of $500,000 to be repaid over 30 years. As you can see, for each 0.5% increase in the interest rate, the cost of the loan jumps by tens of thousands of dollars.

Interest rate Fortnightly repayments Total interest paid
2%
$853
$165,007
2.5%
$912
$210,749
3%
$973
$258,344
3.5%
$1,036
$307,800

It naturally makes sense to look for the lowest possible interest rate and to shop around for the best mortgage deal.   However, what the best mortgage deal is will vary from person to person depending on personal circumstances and isn’t always solely down to interest rate. 

For example, young first home buyers may look for a loan with a lower introductory interest rate and a lower deposit requirement to assist them in the first months of home ownership, when they have plenty of other expenses like buying new furniture.  However, an older couple looking to buy an investment property may be looking for tax offset advantages, so it may be their preferred option despite the increased rate.

What other features should I consider when comparing mortgages?

Further questions about mortgage rates answered

Are fixed or variable interest the best mortgage rates for me?

That depends on the sort of borrower you are and the reason you want a home loan in the first place.  Fixed interest rate loans enable you to budget accurately as they will not change for the duration of the fixed-rate period, usually one to five years.  However, they don’t offer the flexibility or additional features that a variable rate loan will.  Having the ability to link an offset account, or make additional repayments or redraws on your loan, is considered invaluable by borrowers.  These types of loan are the most popular overall in Australia.

Why can online lenders offer lower interest rates?

Online lenders can offer lower interest rates because they don’t have to pay the high overhead costs that most banks have, such as the cost of high street branches and wages of bank tellers.  Even though many aren’t APRA-regulated (a body which supervises financial institutions), they’re still subject to strict credit legislation, making them safe to borrow from.  Additionally, they utilise highly secure online systems to keep your information safely housed in the same way a larger lender would.

Is it possible to refinance with another lender to get a lower mortgage interest rate?

Yes – refinancing with another lender to take advantage of a lower interest rate is a great way to save money and pay less interest over the life of your loan.  It makes good financial sense to check home loan rates regularly and talk to your lender every year to make sure you’re getting the best deal possible.

Are mortgage rates for investors and owner-occupiers the same?

No – if you’re buying a home to live in, you’re likely to get a better mortgage rate than if you’re buying an investment property to rent out.  On average, owner-occupier mortgage interest rates are 0.3% to 0.5% p.a. lower than investment loans because they’re considered to be lower risk than investment property loans.

How do I calculate how much interest I’m paying based on my mortgage rate?

Multiply your loan balance by your interest rate (as a decimal) and divide that sum by 365 days to find out your daily interest rate.   Multiply this sum by 30 or 31 days to get a monthly interest figure.  For example, if your loan principal is $400,000 and your interest rate is 2.5% p.a., the approximate calculation would be:

$400,000 x 0.025 / 365 = $27.39 interest per day

$27.39 x 30 days = $821.91 per month

What is a mortgage comparison rate and is it important?

A loan’s comparison interest rate incorporates both the interest rate and all fees on a home loan to give you a comparable indication of what the loan will cost you.  It’s a more accurate indication of how good the loan offer is, compared to the base interest rate alone.  All lenders quote a comparison rate based on a $150,000 secured loan taken out over a 25-year term.

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