Answers to all of Your Interest Rates Questions

Want to learn more about interest rates? Learn all the answers to your interest rate questions today.

Article published 15 September 2021

Interest rate FAQs

An interest rate is the percent of principal on a loan that is charged by the lender. It is used to determine the amount of interest that is due as part of your repayment. 

A debit interest rate is the rate of interest a financial institution charges you if your account is in debit. This applies to when an account is in arrears or is overdrawn and to debt products, such as loans and credit cards. 

A variable interest rate is a type of interest rate that can be applied to loans and bank accounts, where the interest rate can fluctuate over time.

A fixed interest rate is a type of interest rate that is locked down, or fixed, for a set period of time.

A comparison interest rate is a legal requirement for lenders to be displayed next to their advertised interest rates. It is designed to give you an understanding of the overall costs of a home loan, including the interest rate, loan term, repayment frequency and any fees and charges you can expect to pay, e.g. establishment fees, account keeping fees, Government fees and charges, etc. 

When an interest rate falls below zero, a negative interest rate occurs. This is where borrowers begin to be credited interest and are charged to keep money on deposit with lenders. 

Negative interest rates are a rare occurrence for consumer products such as your home loan or savings account.  Negative interest rates are highly unlikely in Australia and are likely to occur when the Reserve Bank of Australia (RBA) sets a negative cash rate as a result of extremely challenging circumstances, resulting in the RBA charging Banks to hold their deposits.

Latest home loan interest rates

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Comparison rate
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Interest rates on home loans

The current interest rate for mortgages can vary depending on the type of loan that is best suited for your situation. From our panel of over 25 lenders, the lowest current interest rate as of 15 September 2021 is for 2 year fixed at 1.84% p.a* with a comparison rate of 2.66%p.a#

Speak to your local broker to get a further understanding on the current interest rates and to find the right type of home loan for you.

Interest rates on a home loan can vary depending on the loan type (owner occupied or investment), repayment type (principal and interest or interest only), lender and loan type (fixed or variable). As of July 2021 the average interest rate for an owner occupied home loan on principal and interest is 2.32%1

When comparing home loans, a good interest rate is typically a lower interest rate as it will help you save money in your repayments or pay more principal off your loan. Even if an interest rate is lower, it is important to also consider the comparison rate as this will take into account the home loan’s fees and charges. 

Of course when looking for an interest rate it is important to take into account the loan fees and features to ensure you are choosing the right home loan for you. 

As with all loans, the interest rate for first time home buyers can vary depending on your situation and loan type. Currently as of 14 September 2021, the lowest interest rate available for first home buyers is a 2 year fixed rate at 1.84% p.a* with a comparison rate of 2.71%#.

Finding the best home loan interest rate is about understanding your financial situation and knowing what home loan product is right for you. You can compare 1000s of home loans using our comparison tool or speak to your Mortgage Choice broker to do all the legwork and find the right loan for you. 

Mortgage interest rates are affected by a number of factors.  One common factor is the Reserve Bank of Australia's (RBA) official cash rate. The official cash rate is the market rate on overnight loans between financial institutions.The cash rate is determined based on various economic factors including consumer confidence, business confidence, the property market and the performance of the Australian dollar. 

Other factors affecting mortgage interest rates include:

  • Loan to value ratio (LVR): Lenders’ may provide a lower interest rate if your LVR is low as a low LVR lowers the risk of lending.
  • Size of your mortgage: If your mortgage is too small or too large, your lender may charge you a higher interest rate.
  • Your credit score: If you have a low credit score you may be subjected to higher interest rates due to the higher perceived risk to the lender. 
  • Type of loan: Different loan types can incur different interest rates, for example an investment home loan or a line of credit will often have a higher interest rate than a variable owner occupied home loan.  

Calculating interest rates

The formula used to calculate your interest rate is  r=[(A/P)^1/nt -1], where N = number of times interest is compounded, A = future value of the loan (principal + interest), P = principal, and t = time period. If your home loan has experienced multiple interest rate changes, you can use this formula to understand the average interest rate over the life of your loan. 

However, if you want to calculate the balance that will remain on your home loan after a certain amount of time, you can use our Mortgage Amortization Calculator here.

The simplest way to calculate interest on a loan is by using the formula: Principal x Interest rate x Time. When using this formula it is important to know your interest rate is expressed annually, therefore the time will be in years.

You can use our fortnightly repayments calculator to find out how much interest and time you will save by choosing to make half your monthly repayment every two weeks instead of once a month.

Your home loan interest rate will be displayed annually. To calculate your monthly interest rate you will need to divide your interest rate by 365, this will give you your daily interest rate. Finally multiply your daily interest rate by 30 or 31, depending on the month you are trying to calculate interest for and the final value will be your monthly interest rate. 

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1 https://moneysmart.gov.au/home-loans/choosing-a-home-loan



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