Low interest home loans from 5.14%

A low interest home loan is a mortgage with a lower-than-average interest rate. Low interest mortgages are often popular as the interest charged on a home loan is one of the most significant factors that affect the loan's overall cost. Choosing a lower-rate mortgage option may mean lower home loan repayments.

Home loan interest rates are influenced by the Australian cash rate set by the Reserve Bank of Australia’s (RBA), among many other factors. Typically, home loan interest rates are a few percentage points higher than the current cash rate. For example, if the cash rate is 4%, the average home loan rate may be around 6-7%. 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'.

You can use the national cash rate to start estimating what is a low rate for a home loan. RateCity's RBA Rate Tracker can give you 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 home loan interest rates on their own, some smaller non-bank lenders may offer lower rates than the major banks to stay competitive. They may also be able to provide their customers with personalised services, or offer more flexible lending criteria to better suit some borrowers.

RateCity research has shown that smaller lenders typically offer lower interest rates on average compared to the Big Four Banks 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 times. If you need to secure financing quickly, this may be a key advantage.

More to a home loan than the interest rate

Just because a mortgage has a low rate doesn’t mean it will necessarily offer the greatest value. While interest rates significantly affect 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 better manage your loan and potentially save you money in interest charges.

Lenders typically reserve their lowest interest rates for ‘ideal’ home loan customers. If you’re trying to nab a lower-rate home loan option, it may be worth 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. Your credit score indicates your financial health, and therefore affects your risk factor for the lender. The lower your risk of 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.

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%, meaning borrowers need substantial deposits to qualify.

Have a stable income

Lenders are also more likely to approve you for a competitive home loan if you have been employed in a full-time job 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 compares the 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. However, 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 repayments. 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 a borrower’s budget. 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 combines a loan’s advertised rate with its standard fees, assuming 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 a loan’s total cost to you.

What are the lowest home loan rates available?

If you simply want to view some lower-rate home loan options, you can do so by using our comparison tables. 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, there’s more to a home loan than the interest rate. It’s important to choose the 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 options 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 different 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

When it comes to your monthly, fortnightly or weekly mortgage repayments, you may choose to pay both the principal owing and the interest charges, or opt for interest-only payments. This can make a considerable impact on your loan costs. 

Each principal and interest repayment helps reduce what you owe 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 often popular with 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 over the long term. Further, interest-only mortgages often come with higher interest 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 loan's 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 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 may also rise.

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’re not careful 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 shows 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 qualify for a mortgage with a deposit as low as 5%. However, you may pay more for it, whether through a higher interest rate or by paying costly Lender's Mortgage Insurance (LMI). 

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 to estimate 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 offering these features.

If you’re still not sure how to proceed, it can be worthwhile seeking an expert's advice 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 not only help you find a competitive loan option, but assist with the application process as well, and negotiate with banks for lower interest rates on your behalf.