How to Compare Home Loans in Australia (And Actually Save)
How to compare home loans the right way: rates, the comparison rate, fees, offset accounts, LMI, and the traps to avoid. A plain-English 2024-25 guide.
By Timothy Hirou GaschereauPublished 11 min read
Try it yourself
Even a 0.25% difference on a $600,000 mortgage is worth roughly $35,000 over 30 years. That's a car, a renovation, or a very good holiday fund. Knowing how to compare home loans properly is one of the highest-value financial skills you can build. This guide covers rates, comparison rates, fees, offset accounts, LMI, and the traps lenders are counting on you to miss. It's part of our compare and choose series, and it's general information only, not financial advice.
🎯 The essential: The advertised rate isn't the full story: the comparison rate bundles in most fees and is a better starting point. Features like an offset account can save you more than a slightly lower rate. LMI, fees and honeymoon rates are hidden costs. Model your own numbers on the free Moneysmart mortgage calculator before you commit.
Why comparing home loans is worth real money
On a $600,000 loan over 30 years, at 6.00% your monthly repayment is roughly $3,597 and total interest around $695,000. At 6.25%, it's about $3,694 a month and $730,000 in interest. That's a $35,000 difference in total interest, and $97 a month, from a quarter of a percent. Most people spend more time comparing flights than home loans; the maths is why that's worth flipping around. Model it yourself with our mortgage repayment calculator.
The advertised rate vs the comparison rate
Every home loan ad shows two rates; most people look at the first. The advertised rate is the interest applied to your balance and doesn't include fees. The comparison rate bundles the interest rate with most standard fees into a single annual percentage, and lenders are legally required to display it. It's a better apples-to-apples number, but it has a limit: by law it's calculated on a standard $150,000 loan over 25 years, so fixed fees look proportionally bigger than on a large loan. Use it as your first filter, then model your own numbers.
The key features to compare
- Variable vs fixed vs split. Variable moves with the market and usually allows unlimited extra repayments and an offset. Fixed locks your rate (1 to 5 years) for certainty, but often bans offsets, caps extra repayments, and charges break costs. Split does both.
- Offset account. A linked transaction account whose balance is offset against your loan daily. $20,000 in offset on a $500,000 loan at 6% saves about $1,200 a year, effectively tax-free.
- Redraw facility. Access to extra repayments you've made. Different from an offset for tax purposes on investment loans (an offset keeps the money clearly separate). Check minimums and delays.
- Extra repayments. Variable loans generally allow unlimited extra repayments; fixed loans often cap them (commonly $10,000/year).
- Loan term. On $600,000 at 6%, a 20-year term saves around $263,000 in interest versus 30 years, at $705 more a month. Shorter is one of the most powerful ways to cut total cost.
- LVR and LMI. Lenders Mortgage Insurance kicks in above 80% LVR and can add $5,000 to $31,000+. If you can reach a 20% deposit and avoid it, it's usually worth it. Our borrowing power calculator helps.
The fees to watch
Fees are easy to overlook. The application/establishment fee ($0 to $600+) is charged upfront. The ongoing/annual fee (often $10/month or $395/year for offset features) adds up: $395 a year over 30 years is $11,850. The valuation fee ($200 to $600) is sometimes passed on. And the discharge fee ($150 to $400) closes your loan when you pay off or refinance. A slightly higher-rate loan with zero fees can beat a low-rate loan loaded with charges, depending on your loan size and how long you hold it.
Fixed vs variable: the real trade-off
Neither is universally better. Fixed gives certainty and easier budgeting, but you typically lose offset access, face limits on extra repayments, and risk break costs (which can run into thousands) if you exit early. Variable gives flexibility, offset access and unlimited extra repayments, but your repayments rise if rates go up. A split loan is a hedge: fix part, keep the rest variable. Think about your income stability, your plans for the property, and how much rate movement you can absorb.
Why the lowest rate isn't always the best loan
This catches people out most often. A loan with a 0.10% lower rate but no offset can cost more than a slightly higher-rate loan with a full offset, if you keep a meaningful balance in it.
Loan A at 5.80% (no offset) on $500,000 saves about $1,000/year versus Loan B at 6.00%. But Loan B with $30,000 in offset only charges interest on $470,000, saving about $1,800/year. Loan B wins by about $800/year despite the higher advertised rate, and the gap widens as your offset balance grows. See our offset account calculator.
How to actually compare home loans
- Get your own numbers: loan amount, deposit (and LVR), and preferred term.
- Use the comparison rate as your first filter, not the advertised rate.
- Check the features you actually need (offset, extra repayments, variable flexibility) and filter out loans without them.
- Model your own numbers on the Moneysmart mortgage calculator (and the switching calculator if refinancing).
- Negotiate. The advertised rate is rarely the best you can get, especially with a good history, low LVR, or a competing offer.
- Consider a mortgage broker, who compares across lenders (paid by lender commission, so ask about their panel). See our broker vs bank guide.
Refinancing to a better deal
Refinancing means switching your loan to a new lender (or product) for a better rate or features. It makes sense if your current rate is well above market or your needs have changed. Switching costs include a discharge fee ($150 to $400), a new application fee ($0 to $600), sometimes a valuation ($200 to $600), and possibly LMI if your LVR has shifted. Break-even = total switching costs divided by monthly saving: if switching costs $1,500 and you save $200 a month, you break even in 7.5 months.
| What to compare | What to look for | Why it matters |
|---|---|---|
| Comparison rate | Includes most fees, use as a first filter | Better like-for-like across lenders |
| Offset account | Full offset, daily calculation, no caps | Can beat a lower rate if you hold a balance |
| Extra repayments | Unlimited (variable) or capped (fixed) | Lets you pay down faster, cutting interest |
| Loan term | 20, 25 or 30 years | Shorter = far less total interest |
| Fees (application, annual, discharge) | $0 is ideal; total over the loan's life | Fees can add thousands |
| LVR and LMI | Stay at or below 80% LVR | LMI can add $5,000 to $31,000+ |
| Honeymoon / revert rate | Always check the revert rate | A low intro rate that reverts high costs more |
Watch for rate creep: lenders offer their sharpest rates to new customers, and existing customers who don't ask quietly drift onto higher rates. Check your rate against the market every year or two. Loyalty is not always rewarded in the home loan market.
The bottom line: comparing home loans properly takes a couple of hours and can save tens of thousands. Start with the comparison rate, check the features that matter for your situation, and run the numbers on a calculator before you commit. The lowest advertised rate is rarely the full story, and almost never the best rate you can actually get.
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❓ Frequently asked questions
Is the comparison rate always the best way to compare home loans?
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No, it's a useful starting point with real limitations. The comparison rate is calculated on a standard $150,000 loan over 25 years. If your loan is $500,000 or $700,000 over 30 years, it won't perfectly reflect your actual cost. Use it to filter out obviously expensive loans, then model your own numbers with your actual loan amount, term, and features.
Can I negotiate my home loan rate?
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Yes, and more often than people realise. Lenders have discretion to offer discounts below their advertised rate, especially if you have a low LVR, a strong repayment history, or a competing offer. It's worth calling and asking directly, particularly at the end of a fixed period or if you haven't reviewed your rate in a few years.
What's the difference between an offset account and a redraw facility?
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Both reduce the interest you pay, but differently. An offset account is a separate transaction account linked to your loan; its balance reduces your interest daily and the money is easily accessible. A redraw facility lets you access extra repayments made directly on the loan. For investors, the distinction matters for tax: redrawing from an investment loan for a non-investment purpose can affect interest deductibility. Check with your accountant.
Should I fix my rate or go variable?
+
It depends. Fixed gives certainty and easier budgeting, but you typically lose offset access, face limits on extra repayments, and risk break costs if your plans change. Variable gives flexibility, offset access, and unlimited extra repayments, but repayments can rise. A split loan hedges both. Think about your income stability, plans for the property, and how much rate movement you can absorb.
How much does LMI cost?
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It varies by lender, loan size and LVR. As a rough guide on a $600,000 property: a 15% deposit (85% LVR) might attract LMI around $5,000 to $6,000; a 10% deposit around $9,000 to $15,000; and a 5% deposit can push past $30,000. LMI protects the lender, not you, so reaching a 20% deposit to avoid it is usually worth the extra saving.
What does "discharge fee" mean?
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A discharge fee is what your lender charges to formally close your home loan, whether you're paying it off or refinancing. Most major Australian lenders charge $150 to $400. It's a normal part of the process, but factor it into your break-even calculation if you're thinking about refinancing.
📚 Recommended reading
The Barefoot Investor
Scott Pape
The Barefoot Investor
Scott Pape
Australia's best-selling money book ever. A simple system for accounts, budgeting, debt and a real emergency fund in one.
Making Money Made Simple
Noel Whittaker
Making Money Made Simple
Noel Whittaker
Australia's classic, comprehensive money guide covering tax, super and investing, updated for today.
On Your Own Two Feet
Helen Baker
On Your Own Two Feet
Helen Baker
An Aussie financial planner's essential guide to money independence for women, covering every life stage from single to separated. Warm, practical and genuinely on your side.
Some links above are affiliate links. If you buy through them, Snowball Invest may earn a small commission at no extra cost to you. We only recommend books we'd suggest anyway.
Sources
This article is general information only and does not constitute personal financial advice. Rates, fees and LMI vary by lender and change over time, and the figures here are indicative. Consider your own circumstances and speak with a licensed mortgage broker or financial adviser before deciding.
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Timothy Hirou Gaschereau
Founder of Snowball Invest, not a financial adviser.
I write about what I'm learning myself, because nobody ever taught us how to take control of our own money. It's a skill, not a mystery, and it's never too late to learn it. The best day to start was yesterday, the second best is today.
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