Comparing home loans well means looking past the headline interest rate to what the loan costs and allows over time. Two loans with similar rates can behave very differently once fees, features and repayment structure come into play. For Templestowe borrowers weighing up a purchase or a switch, a few well-chosen comparisons will tell you more than a long list of rates.
What Should You Compare Besides the Interest Rate?
Compare the ongoing fees, the loan features and the repayment structure alongside the rate. A lower rate can be cancelled out by an annual package fee, or by missing features you would have used.
A comparison rate rolls some fees into a single figure, which helps when you compare rates between lenders. It does not show whether a loan has a linked offset, redraw or the ability to make extra repayments, so it only tells part of the story. Our home loans page outlines the main loan types we compare for clients, and the right mix depends on your deposit, income and plans for the property.
Fixed Rate, Variable Rate or a Split Loan: Which Suits You?
A variable rate moves when your lender changes it, a fixed rate stays the same for an agreed period, and a split loan uses both. Each one trades certainty against flexibility.
A fixed rate gives you repayments you can plan around, but extra repayments are often capped and leaving early can trigger break costs. A variable rate tends to be more flexible and often pairs with an offset account, yet your repayments can rise if the lender lifts the rate. A split loan lets you fix part of the balance and keep part variable, which can suit someone who wants some certainty without giving up all flexibility. The cost is managing two loan balances. If a fixed term is about to end, our fixed rate expiry page explains your options.
Principal and Interest or Interest Only?
Principal and interest repayments reduce your loan balance from the start, while interest only repayments cover the interest alone for a set period. Interest only is lower at first but costs more later.
As an illustration, take an $800,000 loan at an example rate of 6.75% p.a. over 30 years. Principal and interest repayments come to about $5,189 a month. Interest only repayments are about $4,500 a month, roughly $689 lower. The balance does not fall during that period, though. If the interest only period runs for five years, the loan then reverts to principal and interest over the remaining 25 years. At the same example rate, repayments rise to about $5,530 a month. Interest only can suit a short-term goal, but you carry the higher repayment later. You can test your own numbers with our extra repayment calculator.
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How Much Is an Offset Account Worth? A Worked Example
A linked offset account reduces the balance your interest is charged on by the amount of savings sitting in it. Whether it is worth paying for depends on how much you keep there and what the loan costs.
Consider a Templestowe household comparing two $800,000 owner occupied loans, both at the illustrative 6.75% p.a. Loan A is a basic loan with no offset and no annual fee. Loan B has a linked offset and an annual package fee, which we will assume is $400 for this example. The household keeps $50,000 in savings that it rarely touches.
With Loan B, interest is calculated as if the loan were $750,000. That saves $50,000 x 6.75%, or $3,375 a year. After the $400 fee, the benefit is $2,975 a year. The household chose Loan B.
The result depends on the balance staying put. At this example rate, the fee outweighs the interest saved once the average offset balance falls below about $5,900. Offset loans can also carry a different rate from basic loans, so check that before you commit. The household also confirmed that the offset was linked to the loan itself rather than a separate account.
Why Use a Broker to Compare Home Loans in Templestowe?
A broker compares loans from the lenders on their panel and matches them to your situation, so you are not working through each lender's website yourself. You still make the final decision.
That matters when your circumstances are not standard. Self-employed income, a pending upgrade or a plan to build equity for a future investment can all change which lender suits you. Our team works with local borrowers through our Templestowe mortgage broker service. We can also check your borrowing capacity before you start inspecting homes, and review an existing loan through refinancing if your current lender no longer suits you.
The trade-off is that no comparison covers every loan in the market, so ask your broker which lenders they compared and why they shortlisted them. Ask also how the broker is paid.
Call one of our team or book an appointment at a time that works for you, and we will compare loan options side by side so you can choose with confidence.
Frequently Asked Questions
What should I compare when choosing a home loan?
Compare the interest rate, ongoing fees, loan features such as an offset account, and the repayment type. A low rate can be outweighed by annual fees or missing features.
What is the difference between a fixed rate and a variable rate?
A fixed rate keeps your repayments the same for an agreed period, but extra repayments are often limited and break costs may apply. A variable rate can move up or down and is often more flexible.
Are interest only repayments cheaper?
They are lower during the interest only period, but the balance does not fall. When principal and interest begins, repayments are calculated over a shorter remaining term, so they rise.
Is an offset account worth paying an annual fee for?
It can be if you keep a steady savings balance in it. At the example rate of 6.75% p.a., a $400 annual fee outweighs the interest saved when the average offset balance falls below about $5,900.
