How to Compare Home Loans Beyond Just Interest Rates

When searching for a home loan, most people focus on securing the lowest interest rate possible. While the rate is a critical factor, it’s not the only one that determines the true cost of your mortgage. Many borrowers are surprised to discover that additional fees, loan features, and flexibility can make a significant difference in long-term costs.

A home loan with the lowest interest rate isn’t always the cheapest once you account for hidden fees, repayment restrictions, and optional features. This guide explains the key factors to consider when comparing home loans so you can make the smartest financial decision for your situation.

Why Interest Rates Are Not the Full Picture

A low interest rate does not automatically mean a cheaper loan. Many lenders promote attractive rates but balance them with higher fees or fewer features, which can increase the total cost over time.

For example:

• A loan with a low interest rate but high monthly fees can cost more than a slightly higher-rate loan with no fees.
• A mortgage with valuable features like an offset account can save you more in interest, even if the rate is marginally higher.

Focusing only on the interest rate can cause borrowers to overlook the bigger picture—and miss out on cost-saving options and flexibility.

Key Factors to Consider When Comparing Home Loans

1. Check the Comparison Rate

The comparison rate gives you a clearer picture of the total cost of a loan. It includes:

• The advertised interest rate
• Most standard fees and charges

A low advertised rate with high fees can result in a much higher comparison rate, indicating that the loan may not be the cheapest option overall. Always compare loans by looking at the comparison rate, not just the headline rate.

2. Evaluate Fees and Charges

Lenders apply various fees that can significantly affect your mortgage’s cost.

Upfront Fees:

• Application fees: $200 to $1,000 for loan processing and setup
• Valuation fees: $300 to $600 for property valuation
• Legal and settlement fees: $150 to $400 for documentation and settlement

Ongoing Fees:

• Annual package fees: $300 to $400 per year, often covering credit cards or offset accounts
• Monthly service fees: $5 to $30 per month

Exit Fees and Break Costs:

• Discharge fees: $150 to $400 when closing or refinancing a loan
• Fixed loan break costs: Potentially thousands of dollars if you exit a fixed loan early

Choosing a low-fee loan can save you thousands over the life of your mortgage.

3. Assess Loan Features That Provide Savings

Extra loan features can help you save money and increase flexibility.

Offset Account:
A transaction account linked to your mortgage that reduces your loan balance for interest calculation.

• Example: With a $500,000 loan and $50,000 in your offset account, you pay interest on $450,000, not $500,000.

Redraw Facility:
Lets you access extra repayments if needed. Check for redraw fees or minimum limits.

Extra Repayments:
Some loans allow additional payments without penalty, helping you reduce your balance faster. Fixed-rate loans often have limits on extra repayments.

Loan Splitting:
Combining fixed and variable components gives you the security of a fixed rate with the flexibility of a variable loan.

4. Consider Loan Flexibility

Your home loan should suit your lifestyle and long-term goals.

• Fixed loans: Offer repayment certainty but restrict extra repayments and refinancing.
• Variable loans: Provide flexibility, allowing extra repayments and easy refinancing, but rates can fluctuate.

Look at loan term options, repayment structures (principal and interest vs. interest-only), and the ability to switch between them if needed.

5. Choose the Right Loan Type

Different loan types fit different borrower profiles.

• Basic loans: Lower rates, fewer features, low or no ongoing fees
• Standard variable loans: Include offset accounts and redraw facilities, slightly higher rates
• Fixed-rate loans: Stable repayments, limited flexibility
• Split loans: Blend fixed and variable, balancing certainty and adaptability
• Interest-only loans: Lower initial repayments, typically for investors, higher long-term costs

6. Review Refinancing Opportunities

Refinancing can help you:

• Lower your rate
• Access better features
• Consolidate debts

But consider potential costs, such as:

• Exit or discharge fees
• Break fees for fixed loans
• New application and valuation fees

Make sure the savings outweigh the costs.

7. Check Lender Reputation and Customer Service

Price isn’t everything. A lender’s reputation and service quality can affect your borrowing experience.

• Approval speed
• Online tools and repayment systems
• Quality of customer support

Some borrowers prefer major banks for stability; others opt for smaller lenders for competitive rates and a more personalised approach.

Final Tips: Choosing the Right Home Loan

Interest rates matter—but they’re only part of the equation. When comparing home loans:

• Look at the comparison rate
• Check all fees (upfront, ongoing, and exit)
• Assess loan features (offset accounts, redraw, extra repayments)
• Match the loan type to your goals
• Research lender service quality

By carefully evaluating these factors, you can secure a home loan that not only fits your budget but also supports your long-term financial goals.