Lowest interest rate home loans from 5.34%

A low interest home loan is, as the name suggests, a mortgage with a lower-than-average interest rate. A low interest mortgage can be beneficial for customers as the interest charged on a mortgage is one of the most significant factors impacting the overall cost. By choosing a lower-rate option, it may keep repayment costs down. 

What is a low interest rate nowadays?

So, what qualifies as a low interest rate nowadays? Well, it depends on the national cash rate.

Home loan interest rates are influenced by the Reserve Bank of Australia’s (RBA) cash rate, among many factors. Typically, home loan interest rates are a few percentage points higher than the current cash rate. Currently, low interest home loans have become a highly sought-after financial product for individuals and families looking to purchase or refinance their homes.

For example, if the cash rate was 4%, home loans may be around 5-7%. If a home loan is advertised at 10% during this time, it can be assumed to be higher than average. Previously, when the cash rate was only 0.10% between 2020-2022, some lenders were advertising home loan interest rates starting with a '1'. 

The cash rate is a good place to start to judge what is a low rate. Hop onto our RBA Rate Tracker page to get an idea of where the cash rate currently stands, and what major lenders in Australia are now offering as their lowest ongoing variable rates.

When looking at interest rates on their own, more often than not the smaller, non-bank lenders may offer lower rates than the banks to stay competitive. As these lenders are typically smaller organisations than the big four banks, they may be able to provide more personalised services to their customers, or possibly offer more flexible lending criteria to better suit a wider range of borrowers.

RateCity research shows that smaller lenders may offer lower interest rates on average compared to their big bank competitors. This is because smaller banks tend to have fewer overheads, like branches, so they may pass on these savings to customers in the form of lower interest rates. Additionally, smaller lenders may have a more streamlined application process and faster turnaround. If you need to secure financing quickly, this may be a key advantage.

While a low-interest rate on a mortgage is appealing, it's essential to understand that low rate home loans that work best for you will be those that meet your home loan goals and financial needs in the long term. Just because a mortgage has a low rate doesn’t mean it will necessarily offer the greatest value. While interest rates significantly impact your monthly repayments and overall interest costs, comparing home loans involves more than just focusing on rates.

For instance, some lenders that charge a low interest rate may ask for higher fees, especially loan establishment fees, which could increase your upfront expenses. It’s also worth checking the features and other benefits associated with a loan. Evaluate features like any prepayment penalties, options for extra repayments and redraws, and the availability of a 100% offset account. These features could help you manage your loan better and potentially save you money in interest charges.

When it comes to choosing between smaller online lenders and major financial institutions and banks, convenience could be another factor to consider. The bigger banks or lenders are often able to offer full home loan packages, bundling the bank’s full range of services (transaction/savings accounts, credit cards etc.) along with the mortgage. Plus, with most banks you’ll have the option to visit a branch to talk over your home loan, which may not be possible with some online-only lenders.

Lenders typically reserve their lowest interest rates for home loan customers they consider ‘ideal’. If you’re trying to nab a lower-rate home loan option, it may be worthwhile assessing your financial position, including your income, credit report, and savings, to see if you are an ideal borrower. 

Have a good credit score

Having a credit score in the ‘good’ to ‘excellent’ range may put you in a more favourable position to nab a low interest rate. This is because your credit score is an indicator of your financial health, and therefore impacts your risk factor for the lender. The less risk you pose towards defaulting on a loan, the higher your chance of approval. 

Before you apply for a home loan, check that your credit score is where you think it is. RateCity offers a free and easy-to-use Credit Score App that may come in handy here. 

Have a larger deposit

The lowest interest rates are also generally reserved for customers with deposits of 20% or more. A larger deposit means you will have a lower loan-to-value ratio (LVR), which in turn, lowers the perceived risk for lenders that you may default on the loan. Many competitive home loans have LVR minimums of 80%, or even 60% - aka borrowers need a substantial deposit to qualify.

Have a stable income

Lenders are also more likely to approve you for a competitive home loan if you have a full time job and have been employed for at least twelve months (or have passed the probation period). This is considered the most stable type of income you could apply for a home loan with, and helps lenders to feel confident that you’ll meet your mortgage repayments.

If you’ve recently switched to a new role, even if it pays a higher salary it may be worth holding off on applying until you’ve passed your probation period. This may help to ensure your application is as strong as possible.

Keep your debt-to-income ratio (DTI) low

Your debt-to-income ratio (or DTI) is one of the important factors considered by lenders when assessing your home loan application. Your DTI is a comparison of the amount of money you earn to what you owe in existing debts. It is calculated by dividing your debts and liabilities by your overall income.

While lenders may have varying criteria around acceptable DTI thresholds, many lenders could consider you a risky borrower if your DTI is over six times your income. A high DTI could cause lenders to reject your home loan application, or offer you a higher interest rate than borrowers with a lower DTI. In contrast, if your DTI is low, you may be eligible for better interest rates than other borrowers.

To reduce your DTI, consider paying off some of your existing debts, such as credit card balances or personal loans, before applying for a home loan.

The interest rate charged on your home loan is arguably the biggest factor that affects the total cost. That being said, a low rate home loan isn't everything. Mortgages with the lowest home loan interest rates are popular among borrowers, as the lower your interest rate, the lower your interest repayments will be on top of your principal. However, there is more to a home loan than the interest rate.

Many lenders also charge fees with their mortgages, which can make a significant impact on the budget of a borrower. These can include:

• Upfront fees, like application fees
• Ongoing fees, like annual fees
• Break fees if ending a fixed rate term early
• Extra or early repayment fees
• Redraw fees
• Exit fees

A mortgage with a low interest rate and high ongoing fees may turn out to be more expensive in total than a mortgage with a higher interest rate with lower fees and charges. For this reason, it may be worth also looking at the comparison rate of the home loan.

A comparison rate takes stock of the advertised rate, as well as most of the fees charged, on a 25-year, $150,000 home loan. While this loan amount is lower than the average mortgage nowadays, it's still a helpful tool that shows you if a home loan has any sneaky fees. For example, if the comparison rate was 1-2% higher than the advertised rate, you could assume the lender charged costly ongoing fees. However, it’s worth noting that while comparison rates are a good starting point, they may not provide an exact measure of the cost of a loan to you.

Even though comparison rates take into account several factors beyond the interest rate, there are other things that could affect the cost of the loan, including the size of your deposit and whether you need to pay for Lenders Mortgage Insurance (LMI), any fee waivers or cashback offered by the lender, and your eligibility for any applicable government grants (such as the First Home Owner Grant).

Besides the interest rates and fees charged on a loan, there may be other factors that could help you manage your mortgage better and potentially save you money. For instance, you may prefer a home loan that comes with helpful features, such as a redraw facility, so you may chip away at your mortgage amount owing and ideally pay the debt off faster. Home loans with features may come with higher interest rates, so it’s all about what you’re willing to prioritise and pay for. If you want to avoid paying as many fees as possible, a no-frills basic home loan may better suit your budget. 

What are the lowest home loan rates available?

The interest rate you pay on your home loan is tied to the cash rate set by the RBA. When the RBA raises the cash rate, lenders often pass on the rate increase to customers, causing variable mortgage interest rates to go up. However, not all lenders may pass on the full rate hike. Some may only pass on a portion of it, or they might do it gradually to stay competitive.

If you simply just want to view some lower-rate home loan options, you can do so by using the comparison table on this page. Filter down your options as you see fit (fixed or variable rates, with or without features etc.) and then click on the 'sort' button. Choose to sort your results by the lowest interest rates or comparison rates.

However, keep in mind that there’s more to a home loan than the interest rate you’re charged on it. It’s important to choose a home loan that best suits your lifestyle, financial situation and personal goals. Finding the best home loan may require you to look beyond the lowest interest rates. Comparing loans from different lenders and assessing the rates, fees, features and benefits can help you work out the best mortgage option for you and your situation.

The interest rate you’re offered will likely come down to your lender. You could also expect to pay a higher interest rate depending on whether you’re buying an investment property or a home to live in, planning to make principal and interest repayments or pay interest only, and if you’re looking for a variable or fixed interest rate. 

Here are some of the most common home loan factors that can influence the interest rate you are offered:

Principal and interest or interest-only repayments

You may choose to pay both the principal owing and the interest charges or opt for interest-only payments. This can have a considerable impact on your loan costs. 

Each principal and interest repayment helps reduce your loan and brings you closer to owning your property outright. However, for a limited time, you may choose to only pay the interest charges and minimise your short-term costs.By selecting interest-only payments, your mortgage repayments will significantly decrease. This payment approach is generally recommended for investors aiming for short-term gains or new buyers who need some breathing room in their budget.

It's important to note that by choosing interest-only payments, your loan amount will not decrease, and it may take longer to pay off your loan. As a result, you may end up paying more interest on your property in total. Further, interest-only mortgages often come with higher interest rates. Lenders apply these rates due to the risk involved, as there's a possibility that borrowers may struggle to afford the loan when it reverts to higher principal and interest repayments.

Fixed or variable interest rate 

The interest rate type you choose may also affect the  overall cost. Variable interest rates are subject to market fluctuation, with the amount of interest the lender charges influenced by the national cash rate set by the RBA.

If the RBA keeps the cash rate on hold, the amount of interest you pay should remain steady. If the cash rate is cut, your lender may pass the interest cut on to you, reducing your home loan repayments. But if the cash rate is increased, your interest payments should move in tandem, hiking your mortgage repayments.

Fixed rate home loans lock in their mortgage interest rates for typically 1-5 years. This can help to keep your repayments stable and comfortably affordable during the fixed period, which can prove especially valuable to first home buyers hoping to build up their initial equity. However, with one of these fixed home loans, you also won’t benefit from any savings if the RBA lowers the cash rate.

Introductory rates 

Some lenders offer heavily-discounted introductory rates, or “honeymoon rates”, as a special offer for the early stage of a loan. These typically revert to standard variable interest rates once this introductory period expires. If you don’t take into account the introductory period caveat when planning your budget, you could find yourself paying much more than you expected when it reverts to the higher standard variable rate.

Deposit size 

The general rule of thumb is that lenders prefer a 20% upfront deposit, as it showcases a strong level of financial responsibility. If you’re looking for a low rate loan, you’ll likely need to save up a larger deposit to help reduce the lender’s risk that you may default on the loan. You may still be qualified for a mortgage with a small deposit of even 5%, however you may pay more for it. 

If you can’t afford a full deposit on the mortgage you’re looking at, there may be other options available to you. If you're still in the early stages of the home buying process, you might like to consider using RateCity's borrowing power calculator for an estimate of how much you may be approved to borrow.

Home loan features

While a low interest home loan can be competitive, some borrowers may prefer to pay a little extra for helpful features, such as an offset account, a redraw facility, or the ability to make extra repayments. Many home loan features can help borrowers to reduce the interest charged on their mortgages or chip away at their principal owing faster. If this is more important to you than a lower rate, it may be worth considering prioritising a home loan with features.

If you’re still not sure how to proceed, it can be worthwhile seeking the advie of an expert when navigating the complexities of low interest home loans. 

Consulting with a mortgage broker could provide valuable insights and guidance tailored to your specific financial circumstances and property goals. Brokers have extensive experience and expertise in the Australian home loan market. They can help you to not only find a competitive loan option, but assist with the application process as well, and negotiate with banks for lower interest rates on your behalf.