If you’re choosing between multiple home loan products, the InfoChoice Home Loan Comparison Calculator lets you fully run the numbers across the entire loan term. The calculator allows you to compare products with fixed, variable and introductory rates with one another, and lets you see which will have the greater overall cost.
With just a couple of clicks you can enter in all the details of two different home loans, and get a comprehensive picture of how much you will be spending on each.
Why is it important to compare home loan rates?
If you’re shopping around for a mortgage, the number of options you have can be a bit overwhelming. There are more than 100 institutions with an ADI (banking) license in Australia, not to mention the range of non bank lenders who give out home loans.
You could be forgiven for just ringing up the bank you’ve always had since you were a teenager, and applying for their most basic home loan. However, when you actually crunch the numbers over a long loan term, even a small difference in interest rates could have a big impact. And this is before getting into fees, which we’ll mention later.
Imagine you were choosing between two loans, one paying 6.00% p.a and one paying 6.25% p.a. Both are on variable rates for $500,000 borrowed over 30 years with monthly interest repayments. Obviously, it’s virtually impossible for rates to stay the same, but let's imagine they do for the purposes of the example, and eliminate any additional fees.
Total payable over loan term
Calculated using the InfoChoice home loan comparison calculator
Using the calculator, we can see that the first loan, despite only being 25 basis points lower, would save you $29,100.02 over the loan term.
Comparing fixed to variable
As anyone who has held a mortgage over the past couple of years will be able to tell you, the little asterisk above the variable rate that says ‘rates are subject to change’, isn’t something to ignore.
In May '22 for example, the average standard variable rate in May '22 was 4.77% p.a, compared to 8.23% p.a in May '23. According to the calculator, this is the difference between monthly repayments of $2,614.27 and $3,749.31.
Fixing your rate insulates you against these sort of changes for as long as the fixed term lasts. For example, if you’d managed to lock in a three year fixed rate of 6.00% p.a in May ‘22, you would have been protected from the effect of cash rate increases. However, when the fixed term expires, you automatically revert to the standard variable rate or a separate revert rate, whatever it may be - most likely higher.
This can mean repayments shoot up dramatically. Imagine someone who had taken out a two year fixed loan in 2021, for example, at historically low interest rates, whose term expired in 2023, after 12 cash rate increases. There was a bunch of Aussies in this spot who saw their repayments suddenly go up by thousands of dollars. This was dubbed the ‘Fixed rate cliff’ by some economists.
When you use the InfoChoice calculator to compare a fixed home loan with a variable, you will be given your repayments for the fixed period as well as what the repayments will become once the fixed term expires.
Since this is likely to be years in the future, it’s difficult to predict. However, most banks move rates broadly in similar directions, responding to the cash rate target and other macroeconomic factors. Even if the rates you put in won’t necessarily be accurate in two or three years' time, the calculator's output is still useful because it’s likely whatever movement there is, up or down, will apply to both products, so you can still see which represents a better deal.
Should I worry about fees and extra charges?
As well as comparing rates, the InfoChoice calculator also incorporates any extra charges or fees that come with the loan product, giving you a complete understanding of all your expenses. The calculator will work out how much extra any ongoing or upfront costs will add, and incorporate that when it tells you your total spending.
Fees can range from Lenders Mortgage Insurance (LMI), which can be several thousands of dollars and baked into the loan as ongoing fees, or negligible monthly account keeping costs. Either way, you should put in any money whatsoever you will end up giving to your lender to get a complete picture of your costs.
The numerous fees will also be reflected in a comparison rate - a higher comparison rate indicates there’s a lot of fees. Some lenders like to entice you with a low advertised rate then charge lots of fees to make up for it - this will be reflected in the comparison rate.
In this sense, it could make sense to enter the comparison rate into our calculator for a more holistic picture.
What is an ‘introductory rate’
As the name suggests, introductory or ‘honeymoon’ rates are special offers designed to entice new customers. Like a fixed rate, the introductory rate will temporarily apply for the introductory term then revert to the standard variable rate.
Fixed and intro rates differ in that introductory rates are not fixed, so will fluctuate with the standard variable rate. The discount however will always apply for as long as the introductory period lasts.
You can compare products with an introductory rate with normal variable rate products using the same principles discussed above.