Guide to Non-Conforming Loans in Australia
Do you have a non-traditional income stream or a less-than-perfect credit history? You mig...
26 Apr, 2024
Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | LVR | Lump Sum Repayment | Additional Repayments | Split Loan Option | Tags | Features | Link | Compare |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
6.04% p.a. | 6.06% p.a. | $2,408 | Principal & Interest | Variable | $0 | $530 | 70% | Featured Online ExclusiveUp to $4k cashback |
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5.99% p.a. | 5.90% p.a. | $2,396 | Principal & Interest | Variable | $0 | $0 | 80% |
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6.14% p.a. | 6.16% p.a. | $2,434 | Principal & Interest | Variable | $0 | $250 | 60% |
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5.94% p.a. | 5.95% p.a. | $2,383 | Principal & Interest | Variable | $0 | $0 | 90% | |||||||||||
5.99% p.a. | 6.14% p.a. | $2,396 | Principal & Interest | Fixed | $10 | $440 | 90% | |||||||||||
5.99% p.a. | 5.99% p.a. | $2,396 | Principal & Interest | Variable | $0 | $150 | 60% | |||||||||||
5.99% p.a. | 6.32% p.a. | $2,396 | Principal & Interest | Fixed | $6 | $799 | 80% | |||||||||||
6.04% p.a. | 6.06% p.a. | $2,408 | Principal & Interest | Variable | $0 | $530 | 90% | 4.5 STAR CUSTOMER RATINGS |
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6.04% p.a. | 7.15% p.a. | $2,013 | Interest-only | Fixed | $0 | $180 | 90% | |||||||||||
6.14% p.a. | 6.17% p.a. | $2,434 | Principal & Interest | Variable | $0 | $445 | 60% | |||||||||||
6.14% p.a. | 6.15% p.a. | $2,434 | Principal & Interest | Variable | $0 | $0 | 80% | |||||||||||
6.19% p.a. | 6.44% p.a. | $2,447 | Principal & Interest | Variable | $248 | $350 | 80% | |||||||||||
6.24% p.a. | 6.48% p.a. | $2,460 | Principal & Interest | Variable | $250 | $250 | 80% | |||||||||||
6.59% p.a. | 6.82% p.a. | $2,552 | Principal & Interest | Fixed | $8 | $0 | 70% | |||||||||||
6.74% p.a. | 7.37% p.a. | $2,592 | Principal & Interest | Fixed | $0 | $160 | 90% | |||||||||||
6.84% p.a. | 7.16% p.a. | $2,726 | Principal & Interest | Variable | $0 | $0 | 95% |
Mortgage holders have had a slight reprieve from cash rate hikes in recent times, the Reserve Bank of Australia (RBA) board opting to hold the cash rate steady at 4.35% in March, and it's unlikely the board will make any changes to the cash rate in the next meeting. Despite this, home loan rates across the board are still the highest they have been in quite a few years, so it's more important than ever to keep shopping around to find the lowest rate available.
Here are some of the cheapest home loans in our database for the month at the time of writing.
Brand |
Product |
Advertised rate % per annum |
Comparison rate % per annum |
---|---|---|---|
HSBC | HSBC Package Fixed Rate Home Loan (Principal and Interest) 2 Years (LVR<60%) | 5.79% | 6.40% |
BOQ | BOQ Standard Fixed Rate Home Loan (Principal and Interest) (New Customer) 2 Years ($150k+, LVR<80%) | 5.79% | 6.39% |
Move Bank | Move Bank Everyday Home Fixed (Principal & Interest) 3 Year LVR <95% | 5.79% | 5.95% |
Heritage Bank | Heritage Bank Home Advantage Fixed Home Loan 5 Years | 5.79% | 6.39% |
Up | Up Home Fixed 5 Years (Principal and Interest) (LVR ≤90) | 5.80% | 5.89% |
Rates correct as of 1 April. Rates may differ to comparison table above.
Finding the best home loan for your needs involves a mix of personal assessment and market research. Start by evaluating your financial situation. This includes understanding your credit score, assessing your income stability, and calculating your debt-to-income ratio. A higher credit score often leads to more favourable loan terms, so it's important to know where you stand. Then, determine how much you can realistically afford for a monthly mortgage payment. This should include considerations for not just the principal and interest, but also taxes, insurance, and any homeowner association fees.
Once you have a grasp on your financial health, it's time to explore the market. Interest rates can vary significantly between lenders and over time. Keep an eye on the Reserve Bank of Australia's rate decisions, as they can influence mortgage rates. Compare offerings from different lenders, including banks, credit unions, and non-bank lenders. Look beyond just the interest rate; consider the loan's features, flexibility, fees, and whether it's a fixed or variable rate. Fixed-rate loans offer stability in repayments, while variable rates may provide savings if rates decrease. Online comparison tools can be helpful, but also consider speaking with a mortgage broker who can offer tailored advice based on your circumstances.
Remember, the best home loan for you balances a competitive interest rate with features that match your financial goals and lifestyle. Don't hesitate to seek professional advice to navigate this significant financial decision.
At Your Mortgage, we provide home loan comparison from over 80 lenders in Australia, including the Big Four, some of the most notable retail banks, non-banks, customer owned banks, and specialist lenders.
You can compare mortgages:
Our home loan interest rate comparison tables allow you to compare the advertised interest rates, the home loan comparison rate (a better reflection of the loan's true value), and what the minimum monthly repayments are based on the loan size you input
As of the end of 2023, the average interest rates for home loans in Australia, as reported by the Reserve Bank of Australia varied based on the type of loan. For owner-occupier home loans, the average interest rate for outstanding loans was 5.85% p.a., while new loans had an average rate of 6.24% p.a.
For investment home loans, the figures were slightly higher, with average rates of 6.16% p.a. for outstanding loans and 6.52% for new loans p.a. These rates are for both variable and fixed interest rate loans.
One important factor to consider when comparing home loans is the interest rate option you want: variable, fixed or split.
The interest rate on a variable rate home loan may rise or fall, usually in line with a change in the official cash rate set by the Reserve Bank - although lenders may make changes independently.
Variable home loans often come with additional features that can be attractive to borrowers. These can include the ability to make extra repayments without incurring penalties, which can significantly reduce the overall interest paid and shorten the loan term. Many variable loans also offer redraw facilities, allowing you to access any extra repayments you've made if needed.
A fixed rate home loan provides the certainty of consistent repayments by locking in an interest rate for a predetermined period, typically ranging from one to five years. This fixed period offers a stable financial environment, as your mortgage repayments remain unchanged regardless of fluctuations in the market or changes in the official cash rate set by the Reserve Bank of Australia. This predictability is particularly advantageous for budgeting and financial planning, as it allows you to precisely calculate your expenses over the fixed term.
The interest rate on a fixed rate home loan will remain unchanged for the fixed period, usually one to five years, after which your loan will revert to the standard variable rate.
A split loan offers a unique blend of financial stability and flexibility by dividing your mortgage into two portions: one with a fixed interest rate and the other with a variable rate. This division is not constrained to a specific ratio, allowing for a range of splits such as 70:30 or 60:40, depending on your preferences and financial objectives.
The split loan strategy effectively allows you to ‘hedge your bets’ by taking advantage of both types of interest rates. If rates are falling, having more of your loan as variable means you get the rewards of falling rates while on the other hand, fixing more of your loan could benefit you in a rising interest rate environment.
An offset account is a savings or transaction account linked to your home loan. Your account balance is ‘offset’ against the amount you owe on your loan, reducing the amount of interest you pay. However, you need to be realistic when calculating the expected benefit an offset account may give you. For instance, if the balance of your offset account is low, the additional costs may outweigh any benefits you get from having it.
On the other hand, a redraw facility allows you to pay extra money into your loan that you can take out later if you need. The extra money you pay into the loan reduces your loan balance, which in turn reduces the interest you pay. Your loan balance will still decrease each month according to the terms of your loan. Lenders may impose conditions or a fee for redrawing funds, so check what conditions and charges apply to your loan. If your loan allows you to have your whole pay credit to the loan account and pay bills or use EFTPOS to withdraw funds, it is operating with a redraw facility.
Home loan fees and costs can significantly affect the total cost of your home loan. These fees can be broadly categorised into upfront and ongoing costs, and exit fees. Initial setup fees may include application fees, loan establishment fees, property valuation fees, and legal fees. Ongoing fees can encompass account keeping fees, annual package fees, and potentially, fees for extra features like redraw facilities or offset accounts.
Exit fees, also known as break costs or discharge fees, are charged when you pay off your loan early, especially in the case of fixed-rate loans. Additionally, there might be costs associated with mortgage insurance if your deposit is less than 20% of the property's value. It's also important to consider non-loan costs associated with buying a property, such as stamp duty, conveyancing fees, and building inspection costs. Each lender has a different fee structure, so it's important to compare these costs when shopping for a home loan. Detailed information about these fees is usually available in the loan's product disclosure statement (PDS) or by contacting the lender.
To be able to enjoy the loan features discussed above, you will need to choose one of the following types of home loans:
This is a no-frills loan with few features and a low interest rate. Many lenders now offer redraw facilities, but there can be restrictions and fees, so this kind of loan may not suit if you want to make extra repayments and access them later.
This loan offers more flexibility than a basic loan. For instance, you can redraw any extra money you have paid in, switch to a fixed rate, or split the loan into fixed and variable portions. This loan also often offers a 100% offset account. But you can often find a loan with a cheaper interest rate and similar features.
A home loan package typically includes a standard loan with a discounted interest rate, which can be more competitive than many basic loans. The discount on the interest rate can vary depending on the loan amount and other factors.
Depending on the lender, home loan packages may include added benefits such as a free transaction account and no annual fees for a credit card. However, it's important to note that there is typically an annual package fee involved.
While the interest rate discount and additional benefits might seem attractive, the overall cost-effectiveness of a home loan package depends on many factors including the package fee. In some cases, even with the package fee, you could potentially save on your mortgage compared to standard variable loans, but this is not always guaranteed.
In this loan, you can only spend up to a set credit limit. Typically, you will have your wages paid into the account, as well as pay your bills and other expenses out of the account. The credit limit is fixed and does not reduce as you repay the loan, thus, you can always draw up to that limit. You will eventually need to repay the loan in full, usually by a specified date, which you will need to plan for. This type of loan suits someone who is a disciplined and careful budgeter who may have irregular income.
A bridging loan can be used to manage the transition between buying and selling properties. Bridging loans are generally used by people who buy a new house before selling their existing house. There are typically two types of bridging loans. After assessing the level of equity available in your existing house, lenders may offer the following options:
When you take out a bridging loan, keep this in mind: if you do not sell your existing property within the bridging period, you may have to accept a price lower than you expected, leaving you with a larger end debt to repay.
If you are building a new house, you may need a construction loan. With this type of loan, you can withdraw funds in stages, as you receive bills from tradespeople and suppliers. You will only pay interest on the funds you have used. Most lenders offer construction loans at a variable interest rate. Once the construction is finished, the loan will revert to principal and interest repayments.
The approval for a construction loan often requires a plan, permits and a fixed-price building contract. If you are a building owner, you may be able to apply for this loan without a fixed-price contract, but the lender requirements might be stricter and the loan amount less. You can get more information on building a home from your state’s fair trading or consumer protection agency.
There are many lenders in the Australian mortgage space and we compare over 80 of them. All lenders in Australia are regulated by the Australian Prudential Regulation Authority (APRA) or the Australian Securities and Investments Commission (ASIC).
With so many different lenders to choose from, we’ve broken them down into their respective categories.
The Big Four banks are the 'big dogs' in the Australian mortgage market and are by far the most popular banks the majority of people bank with. These banks all offer a wide range of products from home loans to savings accounts, credit cards, term deposits, car loans, insurance and more. Many people who decide to take out a home loan with one of the Big Four do so out of convenience because they already bank with them. The Big Four banks don’t necessarily offer the lowest home loan rates, but it is still worth to do Home Loan Comparison because their home loans are competitive and usually offer lots of features.
The Big Four are:
Outside of the Big Four are large retail banks that offer services nationwide, as well as some international banks that operate in Australia.
Most states or cities also have their own local banks that offer a range of products, including home loans.
Some of these large banks are also owned by the Big Four banks. For example, Bank of Melbourne, St George and Bank SA are all owned by Westpac, while Commonwealth Bank owns Bankwest, and NAB owns UBank.
Some large banks include:
Credit unions, building societies and mutual banks are all examples of customer-owned banks, meaning they’re owned and operated with the purpose of providing banking services to members (customers) as opposed to generating a profit, like the Big Four banks.
The terms ‘credit union' and ‘building society’ have become outdated in recent years and many have dumped these labels in favour of having the word ‘bank’ in their name. There isn’t much difference between a credit union, a mutual bank or a building society these days, as they’re all operating under a customer-owned structure.
Some mutual banks, building societies and credit unions include:
Non-bank lenders are financial institutions that don’t have an Authorised Deposit Taking Institution (ADI) license, meaning they can’t accept deposits from customers and therefore can’t offer deposit products like savings accounts, transaction accounts, term deposits or offset accounts.
However, they can still offer loans, including home loans. Non-bank lenders are not regulated by APRA but they are governed by the National Consumer Credit Protection Act (NCCP) which is administered by ASIC.
These kinds of lenders do their business entirely online (with phone support) and are generally app-based. Because these lenders operate online, they have fewer overhead costs than traditional banks. This means they can pass these savings onto customers in the form of lower interest rates and fees. Many online lenders also offer a fast and simple application process.
Some online, neobank or non-bank lenders include:
Lastly, there are specialist lenders who offer products for borrowers in unique circumstances. This may include offering bad credit home loans for borrowers with bad credit history to bridging finance or reverse mortgages for retirees.
Some specialist lenders include:
When comparing home loans, you can take advantage of the tools available online. These digital tools can help you assess your overall financial health before applying for a home loan. Here are some of the useful tools you can use:
This tool provides you with an initial estimate of what a lender may be willing to lend based on your income and expenditure. Your income, expenses, and deposit are the biggest factors determining your borrowing power, but lenders also consider other factors such as your existing debts and if you are using a guarantor for the loan.
With a mortgage repayment calculator, you will be able to compare how different interest rates, loan terms, and repayment frequency can impact the cost of your loan. Having an understanding of what your monthly repayments could be can help you to work out whether the loan is something you can afford, and what the total cost of the loan will be over the full loan term.
A split loan calculator can help you decide whether splitting your loan will help you take advantage of interest rates. Ideally, this tool will help you find out how much you’ll be saving in interest if you split your loan, and whether a fixed or variable interest rate is going to be more favourable based on your financial circumstances and goals.
A good home loan rate often depends on the current market competition. You will have to seek help from a broker or do some research to find the most competitive rate in the market with the most useful features. Always remember that a low mortgage rate can only get you so far in the game — it is usually a combination of other factors such as fees and features that make a home loan a competitive one.
The interest rate indicates the percentage of the principal of the loan that the lender charges to you while the comparison rate refers to the broader cost of the loan, which includes other fees and charges.
Besides looking for a home loan with a low interest rate, money-saving home loan features include an offset account, the ability to make free extra repayments, and the ability to make more frequent repayments so you can pay the loan off sooner.
The main features of a mortgage loan, aside from the interest being fixed or variable, include the ability to make extra repayments, offset account, line of credit, split rate option, redraw facilities, home loan portability, the flexibility of repayment schedule, and repayment holidays.
Some home loans are bundled with other financial products, such as savings accounts, credit cards, and insurance. Take note that these features might come with a fee and could impact the overall cost of your loan.
The length of your home loan term determines how much you pay monthly and how much interest you would have paid when you finished servicing your loan. The typical home loan term is around 25 to 30 years.
However, it is important to consider this when deciding how long you want to pay for your home loan: a longer loan term will shrink your monthly payments but would mean a larger interest accrued by the end of the term. On the other hand, the shorter the loan term, the higher the monthly repayments and lower overall interest.
Not sure which type of loan is best for your needs?
Your Mortgage can help you find out.