A low advertised rate does not make a home loan suitable for you. Rate, fees, repayment type and features all work together, and overlooking one of them can cost more than the rate difference you were chasing.
This article is for Hawker borrowers who are weighing up two or three loans and want to compare them properly. Hawker sits in the Belconnen district of the ACT, and our mortgage broker service in Hawker supports buyers and owners in the area with lender comparisons.
Comparing Only the Home Loan Interest Rate
The home loan interest rate is only one part of the cost. Annual package fees, application fees, ongoing fees and the repayment type all change what you pay over time.
A loan with a slightly higher rate can cost less overall if it has no ongoing fee and suits how you manage your money. A loan with a low rate can cost more if the discount only applies to a bundled package with an annual fee. Ask each lender what the rate discount depends on, such as your loan to value ratio (LVR), the loan amount or whether you hold the loan in a package. Compare the whole cost, not only the headline figure.
Choosing Interest Only Without Checking the Repayment That Follows
Interest only repayments are lower at the start, but the repayment rises when the loan reverts to principal and interest, because the same balance must be repaid over a shorter remaining term.
As an illustrative example, consider an owner occupier borrowing $600,000 at an example rate of 6.75% p.a. over 30 years. Principal and interest repayments would be roughly $3,891 a month. Interest only repayments at the same rate would be roughly $3,375 a month, about $516 lower. That looks attractive on a comparison sheet.
Now assume the interest only period runs for five years. The balance is still $600,000 at the end of that period, and it must now be repaid over 25 years. At the same 6.75% example rate, the repayment becomes roughly $4,145 a month. That is about $770 a month more than the interest only repayment the borrower had been paying.
The outcome depends on planning. A borrower who budgets for the $4,145 figure from day one can use the lower early repayments deliberately, for example to build a cash buffer. A borrower who only looks at the $3,375 figure may face payment shock. Interest only also means you are not reducing the loan balance during that period, so you build equity more slowly unless the property value rises. Use a repayment calculator to test both stages before you decide. Rates change, so the figures above are for illustration only.
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Fixed Rate, Variable Rate or Split Rate: Which Suits Your Situation?
A fixed rate gives repayment certainty for a set period, a variable rate moves with the lender's decisions, and a split loan divides your balance between the two.
The trade-offs matter more than the labels. Fixed loans often limit extra repayments and can carry break costs if you sell or refinance early. Variable loans can rise as well as fall, but they commonly offer more flexibility with extra repayments and linked features. A split rate suits borrowers who want some certainty and some flexibility, though you need to manage two loan balances and the terms on each part. If your fixed term is ending, our page on fixed rate expiry explains your options.
Is a Linked Offset Account Worth the Extra Cost?
A linked offset account is worth it if you regularly hold a meaningful cash balance, because that balance reduces the interest charged on your loan. It is less useful if your account sits near zero.
Some loans with an offset account carry a higher rate or an annual fee. Those costs can cancel out the benefit for a borrower who keeps little in the account. Before you choose a loan with a mortgage offset, estimate the average balance you would actually keep there. Then compare the cost of the feature with the interest it would save at the example rate in a calculator. If tax is a consideration, particularly for an investment property, speak with your accountant, as outcomes depend on your circumstances.
Comparing Loans Before You Know Your Borrowing Capacity
Comparing loans before you know how much a lender will let you borrow can leave you assessing products that are out of reach. Each lender assesses income, expenses and debts differently, so your borrowing capacity can vary between lenders.
Home loan pre-approval gives you an indication of what a lender may lend before you make an offer. It is not a final commitment, and it can change if your circumstances or the lender's policies change. Buyers using the first home buyers pathway should also ask whether a smaller deposit triggers Lenders Mortgage Insurance (LMI). It is an extra cost that can be significant, and lenders treat it differently.
If you already have a loan, a loan health check can show whether your current rate and features still suit you, and whether refinancing is worth considering. Refinancing can carry exit and setup costs, so those need to be weighed against any saving.
A broker can compare home loan options from lenders across our panel and explain the trade-offs in plain terms. Call one of our team or book an appointment at a time that works for you, and we will walk through the loans side by side for your situation in Hawker.
Frequently Asked Questions
Is the home loan interest rate the only thing to compare?
No. Fees, the repayment type, the conditions attached to any rate discount and features such as an offset account all affect the real cost. Compare the whole loan, not only the headline rate.
Why do interest only repayments rise later?
When the interest only period ends, the same balance must be repaid over a shorter remaining term. In an illustrative example at 6.75% p.a., a $600,000 loan moves from about $3,375 to about $4,145 a month after five years of interest only.
When is a linked offset account worth paying for?
It is worth considering if you keep a meaningful cash balance in it most of the time. If the loan has a higher rate or annual fee for the feature, check that the interest saved outweighs those costs.
Should I get pre-approval before comparing loans?
It helps, because it shows roughly what lenders may lend you. Pre-approval is not a final commitment and can change if your circumstances or lender policies change.
