How to compare home loans and get the best deal

The interest rate is a crucial factor to consider when searching for a favourable deal on a home loan. Given that a home loan is a debt that stretches over a lengthy period, even a minor variation in the interest rate can accumulate significantly in due course.

Various options and features are available with home loans, providing flexibility and enabling you to pay off the loan more quickly. However, some of these options may incur additional costs, hence it’s essential to weigh their benefits against their expenses before deciding to opt for them.

Types of home loans

Principal and interest loans

The majority of home loans fall into this category, wherein the borrower makes periodic payments on the borrowed sum (principal) and also pays interest on it. The loan is gradually repaid over a specified duration (loan term) such as 25 or 30 years.

Interest-only loans

With an interest-only loan, during the initial phase, typically five years, your payments only repay the interest on the borrowed amount. As a result, the principal amount borrowed remains unchanged, and your outstanding debt remains constant. Although the interest-only payments during this period may be less, therefore the initial repayments will be lower, it’s important to note that they will increase subsequently. Therefore, it’s crucial to ensure that you can manage the higher payments after the interest-only period.

Expert Tip 1: Choose the shortest loan term that you are comfortable repaying

The loan term denotes the period within which you need to repay the loan and significantly impacts the size of your mortgage payments and the total interest payable over the life of your home loan.

Opting for a shorter loan term, say 20 years, leads to higher repayments but can significantly lower your interest payment. On the other hand, choosing a longer loan term, say 30 years, lowers your repayments but results in higher interest payments.

Expert Tip 2: Compare and save with the lowest interest rate

A reduction of as little as 0.5% in the interest rate can translate into significant savings to the tune of thousands of dollars over the life of your home loan. For more details on how much you could save, check out our handy suite of home loan calculators.

Expert Tip 3: Fixed vs Variable, which one is right for you?

Before signing on the dotted line, you will need to weigh up  the advantages and disadvantages of fixed and variable interest rates to determine which option is better suited for your needs.

Fixed interest rate home loans

A fixed interest rate means the interest rate stays the same for a predetermined duration, say five years, after which it may shift to a variable interest rate, or you may be able to renegotiate another fixed rate term with your lender.


  • Simplifies budgeting since you are aware of the exact amount of your repayments
  • Choosing fewer additional loan features may cost you less over the fixed term


  • Your interest rate won’t change if the interest rates decrease during your fixed term
  • Switching loans during the fixed period may incur additional costs, such as a break fee

Variable interest rate home loans

A variable interest rate is prone to fluctuation, either upwards or downwards, depending on the market (for example, due to variations in official cash rates).


  • more loan features can increase your flexibility in managing your loan
  • typically more straightforward to switch loans later if you come across a better deal


  • makes budgeting more challenging since your repayments may vary depending on fluctuations in the interest rate
  • adding additional loan features may result in additional costs

Partially-fixed rate home loans

If you’re uncertain about whether a fixed or variable interest rate suits your situation, you can opt for a combination of both. With a partially-fixed rate, commonly referred to as a split loan, you allocate a portion of your loan to a fixed rate and the remainder to a variable rate.

Expert Tip 4: Work out what you can afford to borrow

Be pragmatic about your financial capability to repay the loan. Given the escalation in mortgage interest rates, it’s prudent to allow for some margin to avoid financial strain.

The best way to determine how much you can reasonably borrow is to check out our Loan Repayment Calculator and Borrowing Power Calculator. Be sure to factor in all associated buying costs using our Buying Costs Calculator and don’t forget to factor in Stamp Duty.

Remember, our friendly and knowledgeable Mortgage Specialists are on hand to answer any questions you have about home loans and can compare home loan package options from many of Australia’s most trusted bank and non-bank lenders on your behalf to save you time and money on your home loan. Simply give us a call on 1800 538 287 for an obligation-free chat about your home loan needs.