Avoid These 5 Mistakes When Comparing Home Loans

Most borrowers compare the wrong things when choosing a home loan

The first number most people look at when comparing home loans is the advertised interest rate. That rate rarely tells you what you'll actually pay, and it doesn't reveal whether the loan will work for your situation beyond the first few months. The comparison rate exists to account for some fees, but it still assumes a loan amount and timeframe that might not match yours. If you're shopping for a home loan based on headline figures alone, you're making decisions without the context that determines whether a product will cost you more or less over time.

A genuinely useful home loan comparison starts with your own numbers: what you're borrowing, how you plan to repay it, and what might change in the next few years. Once those are clear, you can assess which loan features will reduce your interest, which ones you'll never use, and where lenders build in costs that don't show up in the rate.

Advertised rates assume circumstances you probably don't have

Lenders publish their lowest rates for borrowers who meet specific conditions. Those conditions usually include a loan to value ratio below 80%, owner occupied status, principal and interest repayments, and sometimes a requirement to hold other products with the same lender. If your deposit is smaller, you're buying an investment property, or you're applying for interest only terms, the rate you're offered will be higher than the advertised figure.

Consider a borrower refinancing an investment loan with a 75% LVR. The lender's advertised variable rate might sit at 6.09%, but the actual rate offered could be 6.49% once the investment property loading and interest only structure are applied. That 0.40% difference on a $500,000 loan amount adds roughly $2,000 per year to the cost. The advertised rate wasn't misleading, but it wasn't relevant either.

When you're comparing home loan options, check the rate that applies to your specific situation. Most lender websites let you filter by occupancy type, repayment structure, and LVR band. If the rate isn't clear, assume it's higher than the headline figure.

Packaged discounts often cost more than they save

Some lenders offer rate discounts if you bundle your home loan with a credit card, transaction account, or insurance product. The discount might be 0.10% to 0.15%, which sounds modest but can reduce annual interest by several hundred dollars on a large loan amount. The question is whether the packaged products themselves carry fees or conditions that offset the saving.

In our experience, a borrower who takes a packaged home loan to secure a 0.10% discount but then pays a $395 annual card fee and a $15 monthly account fee has added $575 per year in costs. On a $400,000 loan, the discount saves roughly $400 annually. The package has increased the overall cost, not reduced it, and the borrower is now locked into products they might not have chosen independently.

Before accepting a package, add up every fee attached to the additional products and compare that total to the annual interest saving from the discount. If the fees exceed the saving, the package isn't delivering value. If you don't need the bundled products, a loan without a package and without the associated fees might cost you less overall. For more on how lenders structure discounts and what to look for, see our page on home loans.

Flexibility features matter more when your income changes

An offset account linked to your home loan reduces the interest you're charged by applying your account balance against the loan amount. If you have $20,000 sitting in a fully linked offset and a $450,000 loan, you're only charged interest on $430,000. That's a straightforward saving with no tax implications, and it keeps your money accessible.

Not all offset accounts are fully linked. Some lenders offer partial offsets that only reduce interest by 40% or 60% of the account balance. A partial offset still provides some benefit, but it's not as effective as a full offset, and the difference can add up over time. If you're comparing home loan products and one offers a partial offset while another offers a full offset at a similar rate, the full offset will reduce your interest more.

Redraw facilities let you access extra repayments you've made, but lenders can impose minimum withdrawal amounts, processing times, or fees. If you're likely to need access to surplus funds, check how the redraw works before you commit. A loan with free unlimited redraw and a rate that's 0.05% higher might suit you better than a loan with a lower rate but a $50 redraw fee each time you withdraw.

Fixed rates lock in certainty but limit your options

A fixed interest rate home loan protects you from rate rises for a set period, usually between one and five years. If variable rates increase during that time, your repayments stay the same. If rates fall, you don't benefit unless you break the fixed term, and that usually triggers a cost.

Break costs are calculated based on the difference between your fixed rate and the lender's current wholesale funding cost for the remaining fixed period. If you fixed at 5.5% and rates have dropped, the lender has lost income by locking in your higher rate, and they'll recover that loss through the break cost. The amount can run into thousands of dollars, particularly if you're breaking early in the term or if rates have fallen sharply.

Fixed loans also restrict extra repayments. Most lenders allow between $10,000 and $30,000 per year in additional repayments during a fixed term, but anything above that limit either isn't permitted or incurs a fee. If you're expecting a bonus, inheritance, or other lump sum, a fully fixed loan might prevent you from using that money to reduce your debt. A split loan structure, where part of your borrowing is fixed and part is variable, gives you rate protection on one portion while keeping flexibility on the other. You can read more about how this works on our refinancing page.

Lenders price risk differently depending on your profile

Two borrowers with the same deposit and loan amount can be offered different rates by the same lender, depending on their employment type, credit history, and loan purpose. A borrower with permanent full-time employment and a clean credit file will generally qualify for a better rate than a borrower who is self-employed or has a default listed, even if their income and deposit are similar.

Lenders also adjust pricing based on the size of the loan. Some offer better rates for loan amounts above a certain threshold, often $250,000 or $500,000, because larger loans generate more interest income and justify the cost of assessment and administration. If your loan amount sits just below a pricing threshold, it's worth asking whether increasing your borrowing slightly, or combining it with other debt into one facility, would bring you into a lower rate band. The saving might outweigh the cost of borrowing a bit more, particularly if you're consolidating higher-rate debt.

When you apply for a home loan, the lender assesses your application against their credit policy and assigns a risk rating. That rating influences the rate and loan features they offer. If you're unsure how lenders will view your application, speaking with a broker gives you a clearer picture before you submit anything. We regularly see applicants who assume they'll qualify for advertised rates but are offered something higher once the lender reviews their circumstances. Knowing where you sit before you apply helps you compare realistic options, not aspirational ones. If you're considering investment property, you can explore how lenders assess those applications on our investment loans page.

Application fees and ongoing costs add up over the loan term

Some lenders charge an application fee, others don't. The fee typically ranges from $200 to $600, and it's a one-off cost, but it's still part of the total expense of setting up the loan. If you're comparing two home loan products with similar rates and one charges an application fee while the other doesn't, factor that difference into your decision.

Ongoing fees are more significant because they recur every month or year. An annual package fee of $395 adds nearly $12,000 over a 30-year loan term. A monthly account-keeping fee of $10 adds another $3,600. If those fees don't come with features you'll actually use, they're dead weight.

Some loans have no ongoing fees but slightly higher rates. Others have low rates but multiple fees. To compare them properly, calculate the total cost over the period you expect to hold the loan. On a short timeframe, a low-rate loan with high fees might cost more than a higher-rate loan with no fees. On a longer timeframe, the rate becomes more important than the fees. Your own circumstances determine which structure works in your favour.

Match the loan structure to what you're actually going to do

If you plan to make extra repayments, you need a loan that allows them without penalty. If you expect your income to increase, an offset account will help you reduce interest as your savings grow. If you want certainty, a fixed rate gives you that, but only if you're confident you won't need to break the term or access additional funds.

Too often, borrowers choose a loan based on what sounds appealing rather than what fits their actual behaviour. A loan with a redraw facility doesn't help if you never make extra repayments. A fixed rate doesn't protect you if you need to sell or refinance before the term ends. The product has to match your situation, not the other way around.

When you're comparing options, start with your own numbers and plans, then filter for products that support them. If you're not sure which features will matter most, talk through a few scenarios with someone who can show you the numbers. Call one of our team or book an appointment at a time that works for you at book appointment. We'll walk through your options and show you what each loan structure actually costs based on your circumstances, without the assumptions that come with advertised rates.

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