The cheapest home loans on the market

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You might be surprised to learn that various lenders are currently offering some of the cheapest mortgage rates in Australia’s history.

You might also be surprised to learn the names of these lenders – because they’re not your father’s lenders.

The big four banks might be market leaders, but they’re not price leaders. That’s why they often get undercut by smaller rivals, many of which are relatively new to the market.

We’re talking credit unions, building societies and non-bank lenders.

They’re still regulated and they offer many of the same services as banks – they just fit into a different technical category.

If you’re rusted on to the big four banks, there’s no point reading any further. But if you’re open to shopping around, you might be shocked when you discover the rates being offered by some of these challenger lenders.

The big four’s average discounted variable rate for owner-occupiers is 4.23 per cent. But if you browse the 4,000-plus loans on RateCity’s comparison search engine, you’ll find these options:

LenderProductAdvertised rateComparison rate
Reduce Home LoansRate Buster Standard Variable3.39%3.39%
FreedomLendFreedom Variable Home Loan3.49%3.49%
Hume BankFirst Home Starters Package3.49%4.62%
Pacific Mortgage GroupStandard Variable Home Loan3.54%3.54% Home Buyer Special3.54%3.56%

But what if you wanted to take out a three-year fixed rate, instead of a variable rate?

The big four’s average three-year rate is 4.01 per cent. Again, though, there are significantly cheaper options:

LenderProductAdvertised rateComparison rate
MoveLockit Home Loan3.69%3.96%
SCUMy Life Home Loan Package3.69%4.00%
Auswide BankFreedom Package Home Loan Plus Fixed3.69%4.44%
Greater BankUltimate Fixed Home Loan3.74%4.42%
Queenslanders Credit UnionSpecial Fixed Home Loan3.78%4.36%

It’s important to point out that the cheapest loan isn’t always the best loan. Some borrowers, depending on their circumstances, might be better off taking out a higher-rate loan.

But if a low-rate loan was suitable, you could save tens of thousands of dollars over the life of the loan if you chose a challenger lender over a big four bank.

Imagine you were an owner-occupier who wanted to take out a $300,000 mortgage over 30 years. Here’s how your repayments would look if you compared the average big four bank with a low-rate alternative:

Variable loan

Interest rateMonthly repaymentsTotal repayments
Reduce Home Loans3.39%$1,329$478,361
Big four4.23%$1,472$530,031

Three-year fixed loan

Interest rateMonthly repaymentsTotal repayments
Big four4.01%$1,434$516,231