Compare Home Loans

Select the Best has been designed to make Home Loan Comparison easy whilst also helping you navigate through the thousands of home loan options available from hundreds of home loan providers to select the best home loan for you. Our approach to home loan comparison has been used by thousands of Australian’s from investors securing their next property purchase, home owners seeking a better home loan deal and first time buyers jumping in the market with their first home loan.

Comparing Home Loans at Select The Best means you can avoid searching through a raft of websites and sifting through reams of information, as by compiling all the key details of the Home Loans in one place and empowering users to compare home loan options side by side all the strain and stress of finding the best home loan is a thing of the passed.

Compare Home Loans

The first step toward identifying the best home loan for you is to establish what type of home loan best meets your needs, to do this you will initially need to establish 2 key points:

 

  1. How much can you borrow?

The amount you can afford to borrow is referred to as your 'borrowing capacity' and it is based on factors including:

Your income - This is a primary determinant of the amount you can afford to borrow. Your income level will need to comfortably cover the likely repayments on your home loan as well as the other costs associated with home ownership such as repairs, insurance, council rates, and strata fees, while still leaving you cash to cover your day to day living expenses.

Your other financial commitments - Home Loan Providers will also consider your current financial commitments in their calculations of what you can afford to pay. These calculations will include any credit card, personal loan or car loan repayments.

To calculate your borrowing capacity, try our free Borrowing Calculator, simply input your income and expenses and we’ll provide an estimate of how much you can afford to borrow and give an indicative monthly repayment amount.

 

  1. Deposit amount required.

Regardless of how much you can afford to borrow, all home loan providers will require you to have saved a deposit of at least 5% of the property price, with some providers requiring up to 20% as a deposit. All home loans feature a maximum loan-to-value (LVR), which defines the maximum % of the property price the home loan provider is willing to lend you. So for example if the LVR is 80% and the property price is $500,000 the home loan provider would only lend you $400,000 with the expectation that the remaining 20%, or $100,000 would be your deposit amount on the property.

 

Types of home loans

Having established how much you can afford to borrow, the next step is to review the types of home loans to establish the ones that  best fit your financial circumstances. The home loan types available include:

Basic Variable Home Loan

Often referred to as a ‘no-frills’ home loan, these home loans tend to feature the lowest interest rates, which are variable, though come with a very limited range of features. Generally the Basic Variable Home Loan will not allow borrowers to make additional payments to their loan, redraw on these funds or to take advantage of a mortgage offset account by having their salary paid directly into their home loan account.

The primary attraction of Basic Variable Home Loans are the lower interest rates, but this feature must be considered in conjunction with their inflexibility which may not suit borrowers who want the option to pay off their loan at an accelerated rate through increased payments and mortgage offsets.

 

Standard Variable Rate Home Loan

The Standard Variable Rate Home Loan is the most popular home loan in Australia with over 50% of all home loans being of this type.

As one of the most  flexible of all the home loans the standard variable rate home loan includes an array of features that can be used to accelerate the payment of the loan, leading to a saving on interest and a reduced loan term.

Typical features of standard variable loans include mortgage offset facilities, where you can have the interest you owe on your home loan reduced by the interest you earn on your other accounts, without any tax impact; and the option to make extra payments enabling you pay your loan off faster and reduce overall interest costs. Plus most standard variable loans include the ability to redraw your additional repayments should you choose to.

The flexibility of the Standard Variable Rate Home Loan can be used to deliver significant savings on your home loan, though this must be balanced with the fact that the interest rate is variable on this loan type,  so borrowers need to be prepared for possible rate increases across the term of their loan.

 

Fixed Rate Home Loan

Variable rate home loans account for the significant majority of all Australian Home Loans though there are growing numbers of borrowers who are considering the fixed rate home loan option, particularly when times are a little less certain. With a fixed rate home loan borrowers choose to fix their interest rate on the home loan for an agreed period that tends to be 1,3 or 5 years. This fixing of the interest rate means that across the agreed period the home loan repayments will not change across that period, even if interest rates are rising.

Fixed rate Home Loans are becoming increasingly popular with first homebuyers as the fixed rate provides certainty when interest rates may be volatile. Knowing what your repayments are going to be for an agreed period can make it easier to budget especially in the early years of your first home loan that are generally the hardest.

To acquire the greatest benefits from a fixed rate home loan you should look to fix your interest rate at a time when rates are low, then if rates rise this will have no impact on your repayments.

On the flip side if interest rates fall during the period that you have fixed your home loan rate, your loan will be subject to the fixed rate which could result in you paying more interest than you would have under a variable loan.

A further consideration when looking at fixed rate home loans are the expenses that can be incurred if you try to pay out your mortgage before the end of the fixed term. Many home loan providers impose hefty penalties to borrowers who want to pay off their mortgage early or refinance with an alternative provider.

 

Split rate home loan.

A split rate home loan enables you to split your home loan so that a portion of the borrowed amount is on a variable rate and the remainder is on a fixed rate. This is a popular loan option as borrowers have the flexibility to make extra repayments and redraw on the variable portion of the loan, but are less exposed to rate increases and budgeting uncertainty by having part of the loan fixed.

 

Low Doc Home Loan

Low doc (short for ‘low documentation’) loans have made property ownership possible for many Australians who would otherwise have not been able to own a home. Low Doc Home Loans have enabled self-employed, seasonal employees who regularly change jobs, contract workers, investors, or people who earn their income based on commission payments to successfully apply for home loans.

The challenge for these borrowers is that their income is not as predictable as salaried employees and so their past income is very often not an accurate reflection of their current income or their capacity to service a home loan. The major difference between this product and a standard home loan is that borrowers are not required to provide the same level of detailed income and expense information such as tax returns and pay slips to prove their savings/credit history, earnings and financial position.

Replacing this need for detailed documentation is a signed declaration that states the borrowers current income, which the home loan provider uses to assess the loan application.

 

Introductory Offer Home Loans

Introductory Offer Home loans offer borrowers a very low interest rate, usually set for the first 6 to 12 months of the home loan, and are specifically designed to attract new customers based on a lower priced offer.

After the introductory period, the home loans interest rate reverts to the standard variable rate of the loan. These introductory offers are popular with first home buyers who attracted by the low interest rate which means the early repayments on their home loan are at their lowest creating a honeymoon period during which they may become used to repaying these amounts each and every month.

 

Home loan fees

When comparing the cost off a home loan many people begin by looking at the interest rate which will be applied to the loan, clearly this is important but should be considered in conjunction with the home loan fees and charges as these can have a major impact on your repayments.

To help borrowers assess the cost of home loans all home loan providers are obliged by law to include a comparison interest rate when advertising their products.

The Comparison Rate is an indicative interest rate that is designed to help borrowers identify the 'true cost' of a loan. The Comparison Rate takes into account the interest rate and "ascertainable fees and charges" that relate to the loan, in an attempt to express some of the costs of a loan into a single (comparison) rate.

"Ascertainable fees and charges" are those that are definitely payable during the life of the loan - such as application fees, monthly or annual charges, cost of valuation and legal fees. Here at Select the Best we feature a comparison rate for all home loan products in our tables for easy comparison.

A comparison rate is made up of the following:

  • the amount of the loan
  • the term of the loan
  • the repayment frequency
  • the interest rate
  • the fees and charges connected with the loan

It is important to understand that the comparison rate doesn’t take into account other costs such as establishment fees, approval fees, redraw fees, any upfront or ongoing fees that comprise the overall cost of a loan. The comparison rate also does not take into account features like free extra repayments and offset accounts which can vary between loans and can reduce the cost of a loan significantly over the full life of a loan.

The standard comparison rate is based off a $150,000 loan over 25 years so a different amount over a different term will result in a different comparison rate.

 

Features to consider when selecting a home loan

A range of optional features are available with most home loans, a number of which are designed to help you repay your mortgage faster and save on interest charges.

1. An offset account.

An offset account is a bank account linked to your home loan that can be used to reduce the interest charges you pay on your loan. The balance you retain in the offset account is offset against the balance owing on your home loan. For example, if your home loan is $500,000 and you have a balance of $30,000 in your offset account, you will only pay interest on $470,000 of your home loan. A popular way of maximizing the impact of an offset account is to deposit your salary directly into the offset account each month.

2. Free extra repayments.

Repaying your home loan off as fast as your circumstances allow is a great way of saving significant interest costs. Most variable rate home loans tend to allow an unlimited amount of additional repayments on your home loan for no cost, whilst Fixed rate home loans tend to limited to affixed number of repayments per annum.

3. Frequency of your home loan repayments

The majority of home loans where you are making interest and principal repayments will give you the choice of making repayments weekly, fortnightly or monthly, though Interest only home loans are less flexible, offering only monthly repayments. By choosing a more frequent repayment option you can potentially save significant amounts on interest costs.

Frequently Asked Questions

How much of a deposit will I require when applying for a Home Loan?

You should make sure you have enough saved to cover the stamp duty, registration, insurance and legal costs that are associated with any home loan that you apply for, irrespective of the lender. As a guide you will generally need to have at least 10% of the value of the property available to cover these costs. If you need to borrow more than 80% of the value of your property, you may need to allow a bit extra to pay for Lenders Mortgage Insurance

What is a Principal and Interest Home Loan?

Principal and Interest (P&I) home loan repayments are calculated so that you pay back all of the money you borrowed (principal) and all of the interest that will be charged over the term of your loan. When the term ends (usually 30 years) you will end up with a nil balance on your loan

I'm thinking about applying for a home loan, what are the things I should consider in these early stages?

Answer these questions to give yourself a clear view of what you are trying to achieve and what you can afford to spend on a new home, when answering the questions, try to think ahead, not just to next year but also to 5 or even 10 years in the future.

  • Do I want to pay the loan off as quickly as possible or am I happy to see out the term of the loan?
  • Am I good at sticking to a budget or am I a spendthrift?
  • Do I want certainty in the amount of my loan repayments or am I happy for them to move with interest rate changes?
  • Am I likely to want to draw back some of my repayments in the future for spending on holidays, cars, furniture?
  • If I’m planning to have children, how will this affect my or my partner's work situation?
  • How secure is my employment or work situation?
  • For existing children, have I budgeted for school fees and other expenses that are likely to come up in the future?
  • Am I likely to receive some form of cash windfall or bonus at any stage?

Knowing the answers to these questions will help you focus you on the home loans that will best suit your needs. 

What is the difference between offset account and a redraw facility?

Redraw is when you make additional payments above the minimum amount into your mortgage in order to reduce the interest calculated. If the lender allows, these extra payments can be accessed, or drawn on at any time. However this will impact the balance of your mortgage and interest payable. Offset is when you hold these additional payments in a separate transaction account - you aren't reducing the balance of the loan but you're still getting interest reductions through the offset.

How is interest calculated on a home loan?

The calculation of interest is determined by lender and loan contract. Generally the interest cost of your home loan is calculated daily on the outstanding balance of your home loan. An example of how daily interest is calculated on a $300,000 home loan with a standard variable rate of 7% p.a. is as follows:

($300,000 x 7% ) / 365 = $57.53

Some home loan types will allow you to reduce your interest payments through depositing extra money directly into your home loan or your offset account. Interest is calculated daily but it is charged to your home loan in a lump sum as agreed in your loan conditions. Often the lump sum is charged monthly.

In addition, most home loan types require the actual loan amount to also be paid back (Principal). This amount will be added on top of the interest payment. To estimate the repayments on your home loan, check out our home loan repayment calculator.