It’s common for borrowers to compare their home loan interest rate with friends, family, or colleagues and wonder why their own rate looks higher. We get phone calls all the time from clients who have heard that their friends home loan rate is lower than there’s and demand to know why. The reality is that no two loan scenarios are exactly the same. Lenders assess each application on a range of factors, and even small differences in your profile or property can lead to different rates.
Understanding what drives interest rate variations can help you make sense of your current loan – and identify whether it’s time for a review.
1. Loan-to-Value Ratio (LVR) and Equity
One of the biggest drivers of your rate is your loan-to-value ratio (LVR) – the size of your loan compared to the property’s value.
- If you’ve built up significant equity (say your loan is 50% of your home’s value), you’re generally considered a lower-risk borrower and may qualify for a lower rate.
- If your LVR is high (closer to 80–90%), lenders see more risk and may charge a higher rate.
This is why two borrowers with similar incomes and properties can still end up on very different rates – simply based on how much equity they hold.
2. Property Type and Location
Not all properties are viewed equally by lenders. A free-standing suburban house is often considered “safe” security, while some apartments, studios, or properties in high-density complexes may be seen as higher risk.
Location also plays a role. Properties in flood-prone, bushfire-affected, or remote areas may be subject to different lending policies, which can influence the rate offered.
3. Loan Purpose: Owner-Occupier vs Investor
Whether you’re buying a home to live in or as an investment affects your interest rate.
- Owner-occupier loans usually come with lower rates because the borrower is seen as less likely to default.
- Investor loans often attract a loading (commonly 0.2–0.3% higher) due to higher perceived risk and regulatory requirements around investment lending.
So if your neighbour’s paying less, it might simply be because they’re living in their property while you’re renting yours out.
4. Income Verification and Employment Type
Your income and how it’s documented plays a big part in how lenders assess risk.
- PAYG employees with consistent payslips are straightforward for lenders and often rewarded with sharper rates.
- Self-employed borrowers or those using alternative documentation (like accountant declarations or BAS statements) may be offered higher rates because verifying income is more complex.
It’s not about penalising business owners – it’s about lenders managing risk.
5. Loan Features and Structure
The type of loan you choose also impacts your rate.
- Fixed vs variable: Fixed rates can provide certainty, but they may sit higher or lower depending on market conditions at the time you apply.
- Additional features: Loans with extras such as offset accounts, redraw facilities, or package benefits may carry slightly higher rates compared to no-frills basic loans.
When comparing your rate to someone else’s, it’s important to also compare the features – because sometimes a slightly higher rate provides far greater flexibility.
6. Broader Market and Lender Differences
Even with identical circumstances, you could be offered different rates from different lenders. Why? Because each lender has its own pricing models, funding costs, and appetite for certain types of lending.
Some lenders actively compete for owner-occupier borrowers. Others may be chasing more investment lending. These priorities shift over time, which is why it pays to use a mortgage broker.
7. Serviceability and Risk Profile
Your overall financial situation – income, debts, living expenses, credit score, and repayment history – all influence how lenders price your loan.
If your borrowing position is considered “tight” or your credit profile isn’t as strong, the rate you’re offered may be higher than someone with surplus income and a perfect credit history.
How to Len
A Practical Example
Two borrowers could apply on the same day, through the same lender, and still walk away with different rates:
- Borrower A: 60% LVR, owner-occupier, PAYG income, standard home loan with no extras.
- Borrower B: 85% LVR, investment loan, self-employed income verified with BAS, and a loan with multiple features.
Even if both are borrowing $500,000, Borrower A is likely to receive a noticeably sharper rate.
Interest rates aren’t just about what the Reserve Bank does or the headline rates you see advertised. They are tailored to each borrower’s unique circumstances.
So if your rate is higher than someone else’s, it doesn’t mean you’ve made a mistake or that your broker has stuffed up – it reflects the property you’ve bought, the way your loan is structured, and your personal financial profile.
The good news? Rates and loan products change regularly, and lenders often sharpen their offers for the right borrower. If you’re unsure whether your current rate is still competitive, it’s worth having a review. A mortgage broker can compare options across lenders and, in some cases, negotiate a better deal on your behalf.
Book a call with one of the best mortgage brokers in Perth today.
Read:
How do banks calculate living expenses
All lending subject to status and lenders criteria. Terms & conditions apply. This document contains general information only. Your own personal circumstances have not been considered and you should seek independent financial advice prior to making any decision on a financial product.
