Mortgage interest rates: how to shop around for the lowest price

Banks are unveiling fresh interest rate rises almost daily, and borrowers risk losing thousands of dollars by failing to shop around.

Home loan interest costs are rising, but the record low rates borrowers have enjoyed in recent years have lulled many into a mortgage comfort zone.

Fixed rates have been climbing for months, and variable rates will increase too when the Reserve Bank of Australia lifts its official cash rate – likely within a year if inflation keeps marching higher quickly.

On Thursday Westpac lifted fixed rates for the second time this year by up to 0.2 per cent for people paying principal and interest, and scores of other lenders have made similar moves.

Shopping around for the best home loan deal is not only an important strategy for first home buyers. Existing borrowers can potentially save tens of thousands of dollars on their mortgage by asking a few questions or refinancing.

There are still many loans with interest rates around 2 per cent, but the number is shrinking fast and likely to disappear completely next year.

There are two key ways to shop around for the best home loan deal – a DIY approach via phone or online, or using a mortgage broker. Both options have benefits and potential pitfalls.

Comparison website Mozo.com.au’s spokesman, Tom Godfrey, says “all you have to do is surf the net”.

“Using a financial comparison site, you can compare interest rates offered by a wide range of lenders from the big banks to credit unions and online lenders in a few seconds,” he says.

New home buyers and refinancers can all benefit from shopping around for mortgage deals.

However, critics of comparison sites say they don’t offer access to all potential loans available – only those from lenders with which they have a commercial relationship.

Critics of mortgage brokers say the same thing about brokers, so a good strategy for borrowers is to combine both sources when shopping around.

Godfrey says many mortgage brokers don’t offer people access to online lenders, which often have the cheapest rates because they don’t have the large cost overheads that the banks do.

“So if you’re getting a helping hand from a broker, it’s also worth doing your own online research to ensure you’re getting the best deal possible,” he says.

“Even though interest rates have been at their lowest levels in history, Mozo’s latest research shows most borrowers didn’t take the opportunity to switch lenders in the past 12 months.”

Godfrey’s top three tips for savvy mortgage shopping are:

• Compare loans online.

• Don’t remain loyal to a lender.

• Switch to the lowest interest rate.

Mortgage brokers now help about two-thirds of borrowers, up from 50 per cent five years ago, according to data from the Mortgage & Finance Association of Australia.

Angus Gilfillan, the CEO and co-founder of digital-first mortgage broker Finspo, says there are benefits to having a specialist in your corner, and more choice can lead to more savings.

“For example, at Finspo we have access to more than 1000 home loan products from over 30 lenders,” he says.

“Brokers also generally have great market intel, giving you access to deals and rates you may not know about – or are only available through brokers – if you went it alone.”

Gilfillan says borrowers with a $500,000, 30-year mortgage can potentially save more than $50,000 over the loan’s lifetime by refinancing.

He says many people still go down the DIY route using online searches, comparison websites and bank visits, but warns it’s time consuming “with plenty of homework involved” and generally no help through the application process.

Borrowers should “cast a wide net” when examining potential lenders, compare apples with apples when looking at loans, use technology to be notified when better rate become available, and consider cashback offers, Gilfillan says.

“The benefits of a cashback offer can often outweigh the switching costs you may incur when changing lenders,” he says.