What your interest rate means

Where prime comes from

The Reserve Bank sets the repo rate, the banks lend at a margin above it, and the published result is prime. When the repo rate moves, prime moves with it and so does your instalment — a home loan here is a variable-rate product unless you have specifically fixed it.

What a concession is

"Prime less 0.5%" means the bank has agreed to price you half a point under its standard rate. It is a judgement about risk and about whether it wants your business, and it moves on your credit record, your deposit, how much of the property the bank is funding, and whether somebody else is bidding for you.

That last one is not a small factor, and it is the one most applicants never use.

What the difference is worth

Rates assumed for the illustration; your own offer will be whatever a bank puts in writing.

Cheapest instalment is not always cheapest overall

A longer term lowers the monthly number and raises the total. A balloon or a residual does the same thing more sharply. When offers come back, compare the rate, the term and what you will have repaid in total — they do not always point at the same bank, and it is worth being told which is which.

Fixing

Most banks will fix a rate for a period, usually at a premium to the variable rate on the day. You are buying certainty, and you are paying for it. It is worth asking what the fixed option is when the offer arrives rather than assuming it is not available.