Choosing a home loan

When you’re looking for a good deal on a home loan, the interest rate matters. With the cash rate on the rise, even a small difference in interest adds up over time. 

Choose your type of repayment

Principal and interest loans

Most people get this type of home loan. You make regular repayments on the amount borrowed (the principal), plus you pay interest on that amount. You pay off the loan over an agreed period of time (loan term), for example, 25 or 30 years.

Interest-only loans

For an initial period (for example, five years), your repayments only cover interest on the amount borrowed. You aren’t paying off the principal you borrowed, so your debt isn’t reduced. Repayments may be lower during the interest-only period, but they will go up after that. Make sure you can afford them.

Get the shortest loan term you can afford

Your loan term is how long you have to pay off the loan. It impacts the size of your mortgage repayments and how much interest you’ll pay.

• A shorter loan term (for example, 20 years) means higher repayments, but you’ll pay less in interest.

• A longer loan term (for example, 30 years) means lower repayments, but you’ll pay more in interest.

Be realistic about what you can afford. To give yourself some breathing room, calculate what your costs would be if interest rates went up by 2%. 

You can use the MoneySmart mortgage calculator to work out what your repayments would be – and what the total cost of your home loan would be – depending on the interest rate and the length of the loan.

Compare interest rates

Weigh up the pros and cons of fixed and variable interest rates to decide which suits you. An interest rate even 0.5% lower could save you thousands of dollars over time.

Fixed interest rate

A fixed interest rate stays the same for a set period (for example, five years). The rate then goes to a variable interest rate, or you can negotiate another fixed rate.

Pros:

• Makes budgeting easier as you know what your repayments will be.

• Fewer loan features could cost you less.

Cons:

• You won’t get the benefit if interest rates go down.

• It may cost more to switch loans later, if you’re charged a break fee

• You may not be able to make extra payments.

Variable interest rate

A variable interest rate can go up or down as the lending market changes (for example when official cash rates change).

Pros:

• More loan features may offer you greater flexibility.

• It’s usually easier to switch loans later, if you find a better deal.

• You may be able to make extra repayments.

Cons:

• Makes budgeting harder as your repayments could go up or down.

• More loan features could cost you more.

Partially-fixed rate

If you’re not sure whether a fixed or variable interest rate is right for you, consider a bit of both. With a partially-fixed rate (split loan), a portion of your loan has a fixed rate and the rest has a variable rate. You can decide how to split the loan (for example, 50/50 or 20/80).

Check the average interest rate

Choose your loan and repayment types to see the average interest rate for new home loans in April 2026 (Reserve Bank of Australia).

Ask if features are worth it

For example, suppose you are considering a $500,000 loan with an offset account. If you’re able to keep $20,000 of savings in the offset, you’ll pay interest on $480,000. But if your offset balance will always be low (for example under $10,000), it may not be worth paying for this feature.

Avoid paying more for ‘nice-to-have’ options

When comparing loans, consider your lifestyle and what options you really need. What features are ‘must-haves’? What are ‘nice-to-haves’? Is it worth paying extra for features you may never use? You may be better off choosing a basic loan with limited features.

Mai and Michael get the best deal on a home loan

Mai and Michael are looking to buy a $650,000 apartment. They’ve saved a 20% deposit and want to borrow $520,000 over 25 years.

They check a comparison website to compare:

• interest rates – variable versus fixed

• fees – application fee, ongoing fees

• features – basic versus extra (redraw facility, additional repayments)

Ticking different boxes on the website, they look at loan options to see how the cost varies. They decide they want to be able to make additional repayments. Using this as a filter, they review loan options.

They repeat the process with another comparison website.

Then, using this mortgage calculator, they compare the impact of different interest rates over 25 years.

Based on their research, they shortlist loans from two lenders. They approach each lender to get a written quote personalised for their situation, then choose the best loan.

Compare home loans

With the amount you can afford to borrow, compare loans from at least two different lenders. Check the loan interest rates, fees and features to get the best loan for you.

Compare these features:

Source: Moneysmart

Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at www.moneysmart.gov.au
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