How to find the best mortgage rates in Australia

When searching for a home loan, one of the first questions on your mind is likely, "What are the best mortgage rates in Australia?" It's a fair question, as securing a competitive rate can save you thousands over the life of your loan.

However, the answer isn't as simple as it might seem. Mortgage rates fluctuate frequently and are influenced by a range of factors, from the Reserve Bank of Australia (RBA) cash rate to your personal financial circumstances.

In this how-to guide, we'll break down what makes a good mortgage rate, explain the factors that influence rates, and provide tips for finding the best loan for your situation.

What makes a good mortgage rate?

A good mortgage rate depends on several factors, including market conditions, the type of loan you're applying for, and your financial profile. In general, a competitive mortgage rate is one that aligns with the current market average or is slightly lower, while also offering favorable loan terms.

For instance, a borrower with a strong credit score and a low loan-to-value ratio (LVR) might secure a rate below the market average. On the other hand, borrowers with smaller deposits or higher-risk profiles might face slightly higher rates.

Key features of a good mortgage rate include:

• Low interest rates: Either fixed or variable, depending on your preference.
• Minimal fees: Look for loans with low or no ongoing fees.
• Flexible terms: Options like offset accounts or extra repayment features can add significant value.

Factors that influence Australian mortgage rates

Mortgage rates are influenced by a combination of market-wide factors, lender policies, and individual circumstances. Here's a closer look at what drives the rates you're offered:

1. The RBA cash rate

The Reserve Bank of Australia (RBA) sets the official cash rate, which serves as the interest rate on unsecured loans between banks. Essentially, the cash rate is a benchmark for banks on how much interest they need to pay to borrow money from each other.

When the RBA lowers the cash rate, lenders typically lower their interest rates to consumers. For example, this happened when the cash rate was reduced to 0.1% during 2020.

Conversely, when the RBA raises the cash rate, lenders often adjust their rates accordingly. The cash rate currently sits at 4.35% after 13 rate increases.

2. Lender competition and costs

Lenders adjust their rates based on the cost of funding loans and the level of competition in the market.

In periods of high competition, you may find more discounted rates as lenders vie for customers. In periods of lower competition and rising rates, lenders generally tighten their policies and securing a loan becomes more difficult.

3. Your financial situation

While your eyes might light up at that ultra-low rate on a comparison site, actually being eligible for the loan is a different matter.

Lenders assess your credit score, employment history, income, and loan-to-value ratio (LVR) when determining your rate. A lower LVR, which equates to a larger deposit, often leads to better rates, as it reduces the lender's risk.

4. Loan features

While the concept of interest rates might seem straightforward - borrowing money and paying interest on it - there are several loan features that can influence the rate you'll be charged. These include:

The purpose of the loan: Whether you're buying a property to live in or as an investment can impact the interest rate.

Loan type: Different types of loans, such as fixed-rate or variable-rate, have different interest rate structures.

Loan term: The length of the loan can also influence the interest rate. Generally, people opt for 30-year loan terms, but it's possible to sign a 25-year or 20-year loan term. The shorter the term, the more quickly you will pay the loan back, but the less interest the bank will accrue over the course of the loan.

Crystal ball: Will interest rates go down in 2025?

Predicting future mortgage rates is always tricky.

Early in 2024, the common wisdom among economists was that rates were to drop by the end of the year.

By September, this forecast was moved to 2025, with 44% of economists expecting the RBA to cut rates in February. Now, due to persistent inflation and the unpredictable global economic landscape, many economists have revised their forecasts and now expect a rate cut in May.

In March 2021, Philip Lowe, the RBA's then-governor and a key person in charge of managing the cash rate, said to Australians that the cash rate would remain at 0.1% until 2024. After inflation rose due to the lingering effects of the COVID-19 pandemic, the cash rate rose to its highest point in 13 years.

The point is that while we can take the best educated guess with the latest information available, there are many influencing factors that make forecasting the cash rate extremely difficult.

How to find the best mortgage rate for you

Finding the best mortgage rate takes research and planning. Here are some steps to get started:

1. Compare rates online

Comparison sites allow you to compare rates across multiple lenders. Use their filtering tools to tailor results to your needs, whether you're a first-home buyer, investor, or refinancer.

2. Speak to a mortgage broker

Unlike bankers, mortgage brokers have a legal duty to act in your best interests. They can also provide personalised advice, access deals you might not find online, and negotiate with lenders on your behalf.

3. Consider your loan features

Think beyond the interest rate. Loans with features like offset accounts, redraw facilities, or the ability to make extra repayments can save you money in the long run.

4. Get pre-approval

Getting pre-approval from a lender gives you a clear idea of your borrowing capacity and the rates available to you.

5. Keep an eye on market trends

Stay informed about RBA announcements and economic indicators that might impact rates. This can help you time your application strategically.

Conclusion: Look beyond the best interest rates

While there's no single "best" mortgage rate for everyone, understanding the factors that influence rates and doing your homework can help you secure a deal that suits your needs. Remember, rates change every day, so it's important to stay updated and consult with professionals if you're unsure.

For more personalised advice, consider speaking with a mortgage broker or exploring tools to compare the latest rates. With the right preparation, you can find a home loan that works for your budget and long-term goals.

Money - supporting everyday Australians on their journey to financial freedom

For more tips on navigating the property market, visit the Money property section. Ready to learn about investing or building wealth? Explore our guides on financial planning and shares.

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