Home Loan Interest Rates: What Not to Do as ADF

Choosing a home loan on the headline interest rate alone is a mistake that can cost an ADF member money. The rate matters, but the loan structure, the features and your posting cycle matter just as much.

This guide covers the rate decisions that affect ADF members buying in Victoria, and the traps to steer clear of.

What Is the Difference Between a Variable and a Fixed Interest Rate?

A variable rate can move up or down over the life of your loan, while a fixed rate stays the same for a set period. Variable rates usually follow lender decisions, which are often influenced by the RBA cash rate.

The trade-off is simple. A variable rate gives you flexibility, and loans on this rate often allow extra repayments and an offset account. The risk is that your repayments can rise. A fixed rate gives certainty, but extra repayments are often capped, and leaving early can trigger break costs. Both can suit an ADF household, depending on how stable your plans are.

Should You Split Your Loan Between Fixed and Variable?

A split loan divides your loan amount into a fixed portion and a variable portion. It spreads your risk, but it can also reduce the benefit of having all your debt on the flexible side.

The trade-off is that only the variable part can usually sit against an offset account, and the fixed part may carry limits on extra repayments. If you expect to sell or refinance during the fixed period, a split may cost you more than it protects. Ask your broker to explain the break cost rules on the fixed portion before you agree.

Why a Low Advertised Rate Is Not the Whole Story

The advertised rate is only one part of what a loan costs you. Fees, features and the discount you actually receive all change the real cost.

When you compare rates, look at the ongoing fees, whether an offset account is included, and whether the discount lasts beyond the first year. A lender may advertise a low rate that is only available to certain borrowers, such as those with a larger deposit. A broker can show you which lenders suit your situation. Our page on getting a lower interest rate explains how a rate discount can be requested and reviewed.

What Not to Do When Comparing Home Loan Rates

The main mistakes are comparing only the rate, ignoring the loan features, and never checking again after settlement. Each one can add real cost over time.

Here is a scenario to show how it plays out. Consider an RAAF member posted to Laverton who is comparing two loans on a $500,000 loan amount. Loan A has a lower advertised rate but no offset account. Loan B has a slightly higher rate and a linked offset.

At an illustrative rate of 6.75% p.a. over 30 years on principal and interest, the repayment on $500,000 is about $3,243 a month. That figure is an example only, and your rate will depend on your deposit and lender.

The member keeps around $30,000 in savings while on posting. In Loan B, that cash sits in the offset and reduces the balance that interest is charged on. Interest is calculated on $470,000 instead of $500,000, which at the example rate is about $2,000 less interest a year ($30,000 x 6.75%, roughly $2,025). Loan A has no offset, so that cash earns nothing against the loan.

The outcome is that the loan with the slightly higher rate can cost less overall, as long as the member keeps the savings in the offset and checks for any annual package fee. The trade-off is that the cash is not earning interest elsewhere. Use the borrowing capacity calculator to test your own numbers.

How Do ADF Members Get a Lower Home Loan Rate?

You get a lower rate by asking for one, comparing lenders, and showing a strong application. A broker can do the comparing for you across many lenders.

Many lenders look at your deposit size, your income and your loan to value ratio (LVR). A smaller deposit usually means a higher LVR, which can mean a higher rate or Lenders Mortgage Insurance (LMI). Some lenders have policies for Defence members, which may reduce or waive LMI in certain cases. Eligibility depends on the lender, so check the details first. See our pages on no LMI loans for ADF members and low deposit loans.

Does Getting Pre-Approval Lock In Your Rate?

Pre-approval does not usually lock in your rate. It shows how much a lender may let you borrow, and the rate is generally set when your loan is finalised.

Pre-approval is still worth having before you search, because it sets your budget and lets you move quickly. It is conditional, and it expires after a set period. If your posting orders change, tell your broker early. Read more on getting loan pre-approval.

Why You Should Review Your Rate After Settlement

A rate that suited you at settlement may not suit you later. Your rate may no longer be competitive over time, so reviewing your loan regularly is sensible.

If your rate no longer looks right, you can ask your lender for a lower one or refinance. Refinancing has costs and may restart some terms, so weigh those against the saving. Our loan health check is a good place to start, and home loan refinancing for ADF members covers the process.

Your first move is to speak to someone who knows Defence life. Call one of our team or book an appointment at a time that works for you. We are Defence Loans, a Defence mortgage broker, and we will compare ADF home loans from lenders across Australia and give you the facts straight.

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