How to Compare Home Loans in Australia
Last updated: 8 May 2025
Comparing home loans isn't as simple as finding the lowest interest rate. Two loans at the same headline rate can have very different true costs and features. Here's a systematic guide to comparing Australian mortgages properly.
Interest rate vs comparison rate
The interest rate (or headline rate) is the base rate used to calculate your repayments. The comparison rate includes the interest rate plus most fees and charges, expressed as a single annual percentage. By law, lenders must display the comparison rate alongside the headline rate.
A loan advertised at 6.14% may have a comparison rate of 6.58% once fees are included. The gap tells you how fee-heavy the loan is. A large gap (over 0.3%) suggests significant fees — application fees, monthly account fees, or annual package fees worth investigating.
Limitation: The comparison rate assumes a $150,000 loan over 25 years — conditions that don't match most modern home purchases. It doesn't include variable fees, redraw charges, or early repayment penalties. Treat it as a starting point, not a definitive comparison.
Fixed vs variable vs split
| Type | Rate certainty | Flexibility | Best for |
|---|---|---|---|
| Variable | Changes with market | High — unlimited extra repayments | Those comfortable with rate movements |
| Fixed (1–5 yr) | Locked for term | Low — break costs if you exit early | Budget certainty, rate rising environment |
| Split | Part fixed, part variable | Medium | Certainty + flexibility balance |
Fixed rate loans typically don't allow extra repayments above a set limit ($10,000–$20,000/year is common). Break costs (also called economic costs) apply if you exit a fixed loan early — these can be substantial (tens of thousands of dollars) if rates have fallen since you fixed. Always ask for a break cost estimate before fixing.
Offset account vs redraw facility
Both reduce the interest you pay, but they work differently:
| Feature | Offset account | Redraw facility |
|---|---|---|
| How it works | Savings sit in separate account; balance offsets loan | Extra repayments reduce loan balance; can be redrawn |
| Interest reduction | Same | Same |
| Access to funds | Immediate — it's a transaction account | Usually immediate; lender may restrict access |
| Tax on interest | Not applicable — no interest earned | Not applicable |
| Investment property use | 100% tax effective (no income declared) | Less efficient — redrawn funds may reduce deductible interest |
| Typical cost | Often requires package fee ($350–$400/year) | Usually free |
For owner-occupiers, offset and redraw are broadly equivalent. For investors, offset is significantly more tax-effective — speak to a tax adviser about the specific implications.
Key fees to check
- Application / establishment fee: $0–$1,000. Many lenders waive this.
- Valuation fee: $0–$400. Often waived on standard properties.
- Ongoing monthly fee: $0–$15/month ($180/year). Adds $4,500+ over a 25-year loan.
- Annual package fee: $350–$400/year for package loans that bundle rate discounts, offset, and credit card. Worth it if the rate discount exceeds the fee.
- Discharge fee: $150–$400 when you pay off or refinance. All lenders charge this.
- Break cost: Applies to fixed loans only. Can be zero or tens of thousands of dollars depending on rate movements.
LVR tiers and rate discounts
Most lenders tier their rates by LVR (Loan-to-Value Ratio). Borrowers with LVR below 70% or 80% typically receive the sharpest rates. This means that a larger deposit doesn't just eliminate LMI — it often unlocks a lower interest rate, saving tens of thousands over the life of the loan.
On a $600,000 loan over 30 years, the difference between 6.14% and 6.50% is approximately $47,000 in total interest. The rate matters enormously — especially in the first decade when the loan balance is highest.
What a mortgage broker actually does
A mortgage broker has access to 30–40+ lenders and can compare your scenario across their panel, identify lenders with the most favourable policies for your profile (self-employed, high DTI, specialist construction), and handle the application. Brokers are paid by the lender — a commission typically 0.65% upfront and 0.15% annual trail — so there's no direct cost to you. They are required to act in your best interest under the best interests duty introduced in 2021.
Sources: ASIC MoneySmart, National Consumer Credit Protection Act 2009, APRA lending standards. General information only. Always compare actual loan product disclosure statements and consult a licensed mortgage broker.