Determining a Good Interest Rate

How can you identify a good interest rate? Here are five factors worth thinking about when trying to decide which rate is best for you.

When it comes to choosing the best home loan for your needs, one of the main factors you’ll need to consider is the interest rate. Ultimately, the interest rate is one of the main elements that determines how much your mortgage repayments will be.

Type of interest rates

Whether you’re refinancing your existing home loan or looking to take out a new mortgage, understanding the difference between the types of interest rates available to you can help you make the best decision for your circumstances and needs.

For more information on how banks actually calculate the interest on your home loan, you can check out our blog.

Variable interest rates

As the name suggests, variable interest rates vary and fluctuate throughout the term of your loan. There are a number of different factors that impact your interest rate, including:

  • The official cash rate set by the Reserve Bank of Australia’s (RBA),
  • A lender’s cost in funding changes,
  • The loan purpose (owner-occupied or investment),
  • Interest rate type (Unloan currently offers variable rates only),
  • Loan repayment type (we currently offer a principal and interest loan only), and
  • The principal or outstanding amount.

You can learn more about how interest rate changes affect your loan repayments here.

Variable home loans often offer greater flexibility. Many variable home loans provide access to additional features, like redraw facilities, offset accounts and the ability to make additional repayments towards your home loan.

If you play your cards right, you might be able to pay off your home loan quicker with a variable interest rate if interest rates drop. On the flip side, if rates increase, your loan repayments will increase with them which can make it difficult to stay within a budget.

Fixed interest rates

Unlike variable interest rates, fixed interest rates remain locked in for the term of the loan, regardless of any changes in the market. That means that your repayments will stay the same over the duration of your loan term.

While it can be difficult to predict the market, if interest rates are low and it’s looking like a rate increase could be on the horizon, it could be a good idea to lock into a lower interest rate so you can continue to enjoy lower repayments.

With a fixed interest rate, you can choose to lock in your rate for anywhere between one to five years. Once the fixed term ends, your loan will automatically roll over to the standard variable rate.

While fixed-rate loans tend to offer borrowers more certainty around their rates and repayments, they often don’t pro much in the way of flexibility or extra facilities. Many banks and lenders either don’t provide the option to make additional repayments with a fixed-rate loan or they’ll charge you a fee for the privilege. You could also get slugged with a fee if you choose to exit your fixed loan before the term expires.

Split-rate loans

Both variable and fixed loans come with their own unique advantages and disadvantages, but there is a way to get the best of both worlds. Enter split-rate loans.

Some banks and lenders may allow you to split your home loan across both a fixed interest rate and a variable interest rate. It’s up to you what proportion of your loan you allocate across the two types of interest rates. This means that you can count on part of your repayments remaining the same over the life of your fixed rate term while also taking advantage of some of those extra features and facilities that variable loans offer.

Tips for choosing the best interest rate

When it comes to picking the best type of interest rate or home loan, there’s no right or wrong answer. Everyone’s circumstances and needs are different, so it’s important to find a rate that works best for you.  Here are five factors worth thinking about when trying to decide which rate is best for you.

Consider the market conditions

Think about the current economic conditions. In a stable or falling interest rate environment, variable rates tend to be more attractive, as they often start lower than fixed rates. However, in a rising rate environment, fixed rates may provide more stability.

Budget planning

Fixed rates make budgeting easier because your monthly payments remain consistent throughout the fixed-rate period. This can be especially important for people on a tight budget or those who want to know exactly how much they will be paying each month.

Future planning

While we’re on the topic of planning, it can be worth considering your future plans. If you anticipate selling your property or refinancing in the near future, a variable-rate loan might be more suitable since you won't be locked into a fixed rate for a longer term.

Alternatively, if you’re thinking of starting a family or adding a new member to the team, locking into a fixed-rate loan can provide stability if you’re going to be dropping down to a single income for a period of time.


Variable rates often come with features like offset accounts and extra repayments without penalties. This flexibility can help you pay off your loan faster and save on interest. Many fixed-rate loans have restrictions around making extra repayments.

Risk tolerance

It can be worth reflecting on your own risk tolerance. Variable rates can fluctuate with changes in the official cash rate, which can result in lower or higher monthly repayments. Fixed rates, on the other hand, provide predictability and may be more suitable for those who prefer a stable, unchanging mortgage payment.

Ultimately, the ball is in your court. With that said, if you don’t feel comfortable navigating the home-buying journey yourself it can help to chat with a professional. A mortgage broker or financial advisor can provide personalised guidance based on your specific financial situation and goals. They’re often well-versed in the different interest options available, so they’ll be able to help you understand the risks and benefits of each option.

This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking financial advice before making any decision based on this information.‍

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