Home loan interest rates: October 2021

The comparison rate is designed to give you an accurate picture of how much each home loan might cost you by taking into account fees and any other extra charges, so don’t forget to use it.

As mentioned above, the cash rate serves as a benchmark for mortgage rates, but where mortgage rates sit is ultimately up to individual lenders. This is why commercial interest rates are so much higher than the cash rate: lenders need to be able to cover their operating costs (staff, branches, marketing, interest paid out to customers, etc.) and make a profit at the same time.

It’s important to remember that while commercial interest rates tend to move in line with the cash rate, lenders are under no obligation to pass on an RBA cut to their customers in full, or at all.

Lenders will also charge different rates depending on the borrower and the type of loan. For example, interest rates are typically higher on investment loans than on owner occupier loans, as they are considered riskier. The same goes for interest only loans.

That depends. The RBA might decide to raise or lower the cash rate, prompting many lenders to make adjustments to their home loan rates. But lenders are known to make out-of-cycle decisions too, meaning they can increase or decrease rates at their own discretion, simply in response to business demands.

As everyone with a variable rate home loan knows, if your lender decides to raise rates, your repayments will also go up. The opposite will be true if your lender decreases rates. Even a small change in interest rates can make a big difference in the amount you pay each month. For an idea, use our rate change calculator. 

If a bank or lender decides to raise or lower their mortgage rates, it will likely notify customers and inform them of any changes to their repayments. Customers who have arranged to pay just the minimum payment amount via direct debit should have their repayments automatically adjusted.

You have to weigh up the benefits and disadvantages to having extra features on your home loan. While some extras like an offset account, free extra repayments and repayment flexibility can save you money, others may not be so helpful and you generally pay a higher premium for a full features home loan. Take a careful look at the features being offered and decide if they are worth the extra cost. If you’re not sure exactly which feature might benefit you, check out Mozo’s guide to home loan features in a nutshell.

Your interest might be calculated daily, monthly, quarterly or annually. Daily interest is best because it’s calculated as your principal loan reduces, and so you’ll pay less interest all up.  Annual interest, on the other hand, is calculated each day, but based on a yearly principal, which means it takes a whole year before you’ll pay less interest. If you’re on anything other than daily interest, try to time your monthly repayments to be before your interest is calculated, so you’ll be paying interest on the lowest principal possible.

Banks don’t necessarily advertise the fact, but it is possible to negotiate a cheaper home loan rate. Success rates will vary depending on the specifics of the loan, but it’s always worth approaching your lender to see if they’ll budge. 

The main goal for your home loan should be to pay as little interest as possible while remaining realistic about what monthly repayments you can afford to make. Here are a few tips and tricks to help you reduce the amount of interest you pay on your home loan:

• Pay off your loan as quickly as possible. The quicker you can get rid of your loan, the less interest you will pay. But be careful, as sometimes, particularly with fixed term interest rates, you may be charged extra fees or penalties for paying off your loan before the complete term is finished.
• Switch to a shorter term. If your lender allows it, you may want to look at a shorter loan term. This would mean you’ll pay more each month, so be sure to check your budget before going ahead, but it will save you money overall. So, say you had a loan of $150,000, at an interest rate of 3.98%. On a 25 year term, you’d pay $790 each month and a total of $87,030 in fees and interest. If you reduced that to a 20 year term, your monthly payments would increase to $907, but all up, you’d only pay $67,774.
• Take advantage of free extra repayments. Again, you’ll need to check that there are no fees or penalties for overpaying, but this can be an effective way to quickly reduce your principal, and therefore pay less interest. If you’re budget allows for it, you can pay extra in lump sums or added to your monthly repayments to pay off your loan faster.
• Use an offset account. An offset account is a bank account attached to your home loan. The balance you keep in this account is offset against the principal of your home loan to help you reduce the amount of interest you will pay. For example, if you had a home loan of $400,000 and $20,000 in your offset account, you’d only be paying interest on $380,000 of your loan. Think about getting your salary put into your offset account to get the most out of this feature.

There are heaps of competitive home loan interest rates available and it’s worth the time to do some research and find a rate that suits your budget and lifestyle. To get you started, check out these great tools at Mozo:

• Home loans comparison page - find out what home loan rates are currently on offer from hundreds of Australian financial institutes, from the big banks down to small online lenders and credit unions.
• Home loans calculators - crunch the numbers on your home loan and find the answer to questions like ‘How will rate changes affect my repayments?’ and ‘How much can I afford to borrow?’
• Home loan guides - we’ve got a guide on all the trickiest parts of home loans to help you through the process, all the way from deposits to refinancing.

You can also check out our handy interest rate guides for information on how interest rates work and help calculating what interest you'll pay on your home loan.