How to secure the best home loan rate
Securing a favourable interest rate on a home loan is crucial for your financial wellbeing. A lower rate means you’ll pay less over the life of the loan, which can free up your funds for other priorities like renovations, retirement savings, or just having more fun!
If you want to get the best rate possible, here’s what you should know.
1. Understand the factors influencing your home loan rate
Before you start browsing loan options, it’s important to be aware of the factors that can affect your interest rate. These include:
Loan type
The different loan options carry varying interest rates. Fixed rate loans generally come with higher rates because they provide repayment stability, while variable rate loans might start off lower, but can fluctuate. Your choice between fixed or variable will depend on your plans for your home and your risk appetite.
Deposit size
The larger your deposit, the more favourable your interest rate will likely be. Lenders usually offer lower interest rates to customers with a lower loan-to-value ratio (LVR) – and a significant down payment will lower your LVR.
Deposits of at least 20% can also help you avoid Lender’s Mortgage Insurance (LMI), which adds to your overall costs.
Loan inclusions
No-frills home loans are likely to have lower interest rates than those that have “bells and whistles” attached. Offset accounts, redraw facilities, credit cards, and the option to make extra repayments are all features of home loans that can mean you’ll pay a higher rate of interest.
The difference between redraw and offset is explained in this article.
2. Shop around for a lender
Interest rates and loan options vary greatly among banks and lenders, so it’s important to compare offers. Look beyond the ‘big four’ banks and consider smaller lenders (like BCU Bank), as they may offer more competitive rates and personalised service.
If you're unsure where to begin, a mortgage broker can assist you in finding the best deal. Alternatively, check out our home loan options.
3. Keep an eye on market news
Interest rates don’t stay the same. They rise and fall based on economic conditions as we’ve seen since 2020. Typically, rates are lower when the economy is stable, and they tend to climb during periods of economic growth or inflation. Competition can also impact the rates on offer – banks and lenders are competing for your home loan business.
By staying informed about market trends, you can determine the optimal time to lock in a home loan rate, whether a variable loan is more advantageous to your situation or if you should think about refinancing at all.
4. Factor in the total loan cost
While securing a low interest rate is important, you must also consider the full cost of your home loan. Always check the comparison rate when comparing options because it includes both the interest rate and any associated fees you’ll have to pay. A loan with a lower interest rate might seem appealing, but high fees or charges could offset your potential savings over time.
Refinancers beware!
If you want to reduce your home loan rate, refinancing can be a great option. It pays to be cautious though because it’s possible that refinancing could end up costing you more in the long run.
Another 30-year term? Make sure you take the time to consider whether that’s actually a good financial idea.
Finding the best interest rate involves more than just choosing the lowest advertised home loan rate. By understanding the factors that influence rates and taking steps to improve your financial profile, you’ll be better positioned to secure a home loan deal that works for you.
Here at BCU Bank we’re committed to helping you wherever you are on your financial journey. Whether you’re looking for your first home loan or to refinance an existing one, our home lending team can help you explore your options.
Important information
Banking and Credit products issued by Police & Nurses Limited (BCU 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.