What Impacts Your Interest Rate? The 7 Factors Lenders Consider (Australia)
Ever wondered why one borrower gets a lower interest rate than another — even with the same bank?
In Australia, lenders assess seven major factors when pricing your home loan. These factors determine whether you receive the sharpest rates on the market or a higher “risk-adjusted” rate.
Across Sydney, Melbourne, Brisbane, Perth, Adelaide and regional Australia, these seven elements influence every rate decision — whether you're a first-home buyer, investor or refinancer.
This breakdown explains exactly what lenders look at, and how Matcheroo AI helps Australians qualify for the lowest rate available for their profile.
1. Loan-to-Value Ratio (LVR) — The #1 Rate Factor
LVR = Loan amount ÷ Property value.
Lenders reward lower LVRs with lower rates.
Typical tiers across Australia:
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<60% LVR: Best pricing
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60–80% LVR: Strong rates
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80–90% LVR: Higher pricing
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>90% LVR: Highest risk, highest rate
This applies nationwide — especially in high-value markets like Sydney’s Eastern Suburbs, Melbourne’s Inner East, and Brisbane’s riverfront areas.
2. Borrower Type — PAYG vs Self-Employed vs Investor
Different borrower types are priced differently.
PAYG employees
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Lowest risk → Best rates
Self-Employed borrowers
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Higher complexity → Slightly higher rates with some lenders
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Best deals require strong financials
Property investors
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Often pay higher rates, especially for Interest-Only loans
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Investor IO pricing varies heavily by bank
3. Loan Purpose — Owner-Occupied vs Investment
Owner-occupied (live-in)
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Cheapest interest rates
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Strongest lender competition
Investment
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Higher rates
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Higher IO premiums
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Different assessment rules
Investors in Sydney, Melbourne & Perth often pay noticeably more than owner-occupiers.
4. Repayment Type — P&I vs Interest-Only
Principal & Interest (P&I)
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Cheapest rate
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Favoured by lenders
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Lower long-term interest cost
Interest-Only (IO)
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Higher monthly rate premium
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Reduces cash flow strain
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Popular with investors in Sydney & Melbourne
This is one of the biggest pricing differences lenders apply.
5. Credit Score & Conduct — Huge Impact on Pricing
Your credit score influences rate bands.
Higher scores = lower rates
Lower scores = risk margins added
Banks also analyse:
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Late payments
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Overdrawn accounts
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Credit card behaviour
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Defaults or enquiries
Borrowers with strong credit in NSW, VIC and QLD consistently receive sharper pricing bands.
6. Income Stability & Employment Type
Lenders prefer stable, predictable income.
Strongest pricing:
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Full-time PAYG
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Long-term employment
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Consistent income history
More risk-loaded pricing:
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Casual workers
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Gig economy
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Contractors without history
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Self-employed <2 years
These trends are national, but especially strict in banks servicing Sydney & Melbourne metro areas.
7. Lender Risk Appetite & Market Conditions
Interest rates are not just about the borrower — they change based on:
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Funding costs
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RBA cash rate movements
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Competition between banks
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Lender-specific risk appetite
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Market cycles (tight vs loose lending)
Some lenders price aggressively to win market share (e.g., Macquarie) while others prioritise safety (e.g., CBA).
This is why two lenders can differ by 0.40%–0.70% for the same profile.
Bonus Factor: Property Type & Location
Yes — your property’s location can influence pricing.
Lenders treat certain suburbs and property types as higher or lower risk.
Higher risk pricing often applies to:
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High-density apartments (Melbourne CBD, Brisbane CBD)
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Regional mining towns
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Flood-zone suburbs (QLD, NSW)
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Postcodes with oversupply
Lower risk pricing:
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Established metro areas (Sydney North Shore, Melbourne Inner East)
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Family homes with strong resale value
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High-demand school zones
How Matcheroo AI Finds Your Lowest Possible Interest Rate
Matcheroo AI analyses all 7 lender pricing factors:
🟩 LVR
🟩 Borrower type
🟩 Loan purpose
🟩 IO vs P&I
🟩 Credit score
🟩 Employment stability
🟩 Property type & suburb
Then it compares all lenders to determine:
🟢 Your lowest available interest rate
🟢 Your strongest approval probability
🟢 Which bank sees you as “lowest risk”
🟢 Where you save the most over 2–30 years
Borrowers frequently save $2,000–$8,000 per year by matching with the correct lender strategy.
Summary — The 7 Factors That Determine Your Interest Rate
1️⃣ Loan-to-Value Ratio (LVR)
2️⃣ Borrower type
3️⃣ Loan purpose
4️⃣ Repayment type
5️⃣ Credit score
6️⃣ Income stability
7️⃣ Lender risk appetite
(+ property type & location)
No matter where you are in Australia — Sydney, Melbourne, Brisbane, Perth, Adelaide, Canberra or regional markets — these factors determine the rate you receive.
Matcheroo AI ensures you get the lowest interest rate you actually qualify for.
