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How to find the best home loan rate in 2021

Getting a good deal on your mortgage is really important. The lower your interest rate, the less you’ll spend on your home loan over time. Even a marginal interest rate decrease (e.g. 0.5%) can make a substantial difference in the long run.

So, this is why you should take the time to find a suitable home loan and not settle for the first one you find. Whether you’re refinancing or planning on purchasing a new property, we’ve compiled some tips to help you find the best rate for your home loan in 2021.

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1. Check for better interest rates regularly

2020 was the year of multiple RBA rate cuts, so if you haven’t already switched to a more competitive interest rate, 2021 might be the year to do so. Interest rates are at all-time lows and even if your current rate is only a couple of years old, you may be able to find a better deal. Keep an eye on the market and do a serious mortgage health check at least every two years.

These historic low rates are an element of Australia’s post-pandemic recovery to encourage property buying and alleviate some stress from existing homeowners. We can’t be certain about how long these rates will remain as low as they are, so some borrowers may consider looking into fixing their interest rate.

Check out our table comparing fixed vs variable interest rates:

Fixed interest rateVariable interest rate
Borrowers lock in an interest rate, typically for a 1-5 year periodYour interest rate goes up and down with the market
You are protected from fluctuating interest rates during this timeIf the RBA cash rate increases, you can expect your interest rate to do the same
Won’t benefit if interest rates declineAccess to cash-saving loan features, such as offset accounts and redraw facilities (N.B. there are usually fees attached)
Good option for someone who favours security and stabilityCan make extra repayments without penalty
Easier to budget withEasier refinancing.
Fewer home loan features, but this can help save on fees
If you refinance, you can encounter break costs.

You can also look into split rate home loans if you’d like to make the most of both home loan interest rate options.

2. Ask your lender to lower your rate

For borrowers interested in refinancing, you may not have to fully switch home loans in order to get a better interest rate. Before you look elsewhere, it’s important to call up your lender and negotiate.

If your lender is offering a lower interest to new customers, you can ask them to pass on this rate to you. Lendi’s Home Loan Specialists are happy to negotiate on your behalf, if you’d prefer.

And in the end, if they are unwilling to offer you a lower rate, consider looking to other lenders. Remember that home loan repayment periods are usually between 20 and 30 years. There’s no point being stuck on an inferior loan for years. Even if a new lender is only able to give you a 0.5% interest rate decrease, this really adds up over time.

3. Consider switching to a new lender

While you may be familiar with the usual big banks, it’s smart to consider your home loan options with other lenders. Increasingly, smaller online lenders offer some of the most competitive home loan deals.

So, it’s worth taking a look at all your options and not going with a big bank by default. Of course, if a big bank has the home loan you want — go for it!

Many smaller lenders offer specialty loan products that could be better suited to your changing needs. For example, there are lenders who specialise in offering home loans to borrowers with poor credit scores, or who are self-employed and have limited documentation.

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Why switch lenders?

Here are some reasons why you’d consider switching to a new lender:

  • You are unhappy with your current lender’s fees, communication and policies
  • To find a zero-fee home loan
  • Other lenders are offering more competitive interest rates
  • Your circumstances have changed and you’d like to find a new lender that offers a home loan that meets your needs
  • You’d like a fresh start with your home loan.

4. Search and compare interest rates online

Over the past year, many of us have become accustomed to spending more time at home. Did you know that you don’t even need to leave your home to search, compare and apply for home loans? Digital platforms can offer a seamless online application with more choice in lenders Here’s how it works:

  1. You put in your details (information about yourself and what you are looking for)
  2. Smart technology system compares home loans from 35+ lenders
  3. View your personalised shortlist of options suited to your needs. These shortlisted options are home loan products that the platform thinks you are actually eligible for.
  4. If you find your ideal home loan, you can apply entirely online and our experts are on hand to help you through the process.

5. Get a healthy credit rating

Lenders assess your credit history to determine your risk as a borrower. If you are serious about getting a low interest rate, it’s important to maintain a healthy credit score. Before you apply for a home loan, check on your credit score and if it isn’t as good as it could be, it may be a good idea to spend some time developing it.

Check out our article on the different ways you can improve your credit score quickly. One of the best ways to maintain a good credit score is to make repayments on time for any loans or credit cards.

Even if you had a poor credit rating in the past, lenders will be able to see if you’ve developed better habits since. So, consistency is key and it’s smart to spend a few months working up your credit score.

6. Make yourself the ideal borrower

A low risk borrower is an ideal borrower in the eyes of most lenders. If you have a well-evidenced history of financial stability, you are more likely to be offered a lower interest rate.

Here’s what you can do to become the borrower banks want to lend to:

  • Clean up your credit rating by making on-time repayments
  • Have a history of stable employment (although it’s not impossible to get a home loan if you are self-employed, for example)
  • Have evidence of savings
  • Limit your more extravagant spending choices — maybe cut down on your online shopping in the months leading to your home loan application
  • Know what you are looking for in a home loan.

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7. Don’t just focus on the interest rate

While securing a good interest rate is important when it comes to saving money, it shouldn’t be your only concern. Think about whether the overall home loan product services your needs. Remember to consider:

  • Fees: a low interest rate can be made redundant by a fee-heavy loan
  • Loan term: the shorter your loan term, the less you’ll pay in interest
  • Loan features: offset accounts and redraw facilities are great for borrowers with extra cash and savings
  • The lender: does your lender communicate changes and important information properly? Is it easy to service your loan and make repayments?

Finding a good interest rate is as important as ever in 2021. We’re all looking for ways to save money, so your interest rate is a great place to start. Of course, remember that your interest rate is just one (very important) component of your home loan. If you’d like to see what kind of interest rate you’re eligible for, compare with Lendi or chat to a Home Loan Specialist today.

Got a home loan question? Just ask!

We're here to help. Get free expert advice at a time that suits you. Choose a time to chat with a Home Loan Specialist here

The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: interest rate, home loan, refinance, lender, credit score, first home buyer, first home, first property, new purchase, investing

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Important legal stuff

Lendi is the trading name of Lendi Pty Ltd (ACN 611 161 856), a related body corporate of Auscred Services Pty Ltd (ACN 164 638 171, Australian Credit Licence 442372). We will never sell your email address to any third party or send you nasty spam, promise.
# Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
Lendi is a privately owned and operated Australian business. Our mission is to change the way Australians get home loans by providing a faster, smarter and more secure home loan experience designed around the customer’s convenience and needs. Although Lendi compares over 1600 products (2,500+ products including feature and pricing variations) from more than 35 lenders, we don't cover the whole market or compare all features and there may be other features or options available to you. While Lendi is 35% owned by founders and employees, we have also been supported by some great minority shareholders including Bailador, Macquarie Bank Ltd and a number of Australian sophisticated investors. Lendi's board is majority independent and non-executive.
WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates are based on a loan amount of $150,000 over a loan term of 25 years. Fees and charges apply. All applications are subject to assessment and lender approval. Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
IMPORTANT INFORMATION: Loan terms of between 1 Year and 40 Years are available subject to lender and credit criteria. Maximum comparison rate will not exceed 14.99% (see comparison rate warning above). Any calculations or estimated savings do not constitute an offer of credit or a credit quote and are only an estimate of what you may be able to achieve based on the accuracy of the information provided. It doesn't take into account any product features or any applicable fees. Our lending criteria and the basis upon which we assess what you can afford may change at any time without notice. Savings shown are based on user inputted data and a loan term of 30 years. All applications for credit are subject to lender credit approval criteria.
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