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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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.
|Fixed interest rate||Variable interest rate|
|Borrowers lock in an interest rate, typically for a 1-5 year period||Your interest rate goes up and down with the market|
|You are protected from fluctuating interest rates during this time||If the RBA cash rate increases, you can expect your interest rate to do the same|
|Won’t benefit if interest rates decline||Access 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 stability||Can make extra repayments without penalty|
|Easier to budget with||Easier 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.
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.
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.
Don't pay more than you need to.
Here are some reasons why you’d consider switching to a new lender:
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:
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.
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:
Find out how much you could save each month.
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:
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.
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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.
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