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Is a benchmark interest rate the average home loan rate?

Alex Ritchie avatar
Alex Ritchie
- 4 min read
Is a benchmark interest rate the average home loan rate?

If you’re in the market for your first home loan you may have come across the term benchmark interest rate. But what is this rate, and is it the best measurement of comparison for home loans?

A benchmark interest rate is the term given to refer to the minimum interest rate investors will accept when investing in a non-Treasury security, according to the Reserve Bank of Australia (RBA).

It also can be a reference to the RBA cash rate, also referred to as the (near) risk-free benchmark rate (RFR) for the Australian dollar. The cash rate is the interest rate for unsecured overnight loans between banks and lenders.

If all of this seems confusing, don’t fret. While homeowners should pay attention to the cash rate as an interest rate benchmark, there is also a way to view the current average home loan rates new and existing customers are paying.

What is the cash rate and how does it affect home loans?

Every first Tuesday of the month (besides January), the RBA meets to decide whether the cash rate should go up, down or remain the same.

This decision can impact millions of Australians as a higher cash rate may result in higher interest rates on home loans, as well as savings accounts and term deposits. A lower cash rate would result in the opposite.

The current interest rate environment is ‘low’, with the RBA bringing down the cash rate to its lowest point in history at 0.10% in November 2020. A low-rate environment for homeowners means that the repayments they make on their mortgages are charged much lower interest than in a moderate or high interest rate environment.

For example, some homeowners may remember a time in the 1990s when the cash rate was at an eye-watering 17.5%. This meant that interest rates on home loans for millions of households would have sat somewhere in the teens as banks change their interest rates to follow the cash rate’s movement.

For variable rate home loans, these changes may be immediate as variable rates are subject to market fluctuation. If the cash rate goes up, a homeowner may find their next home loan repayment to be higher as their interest rate has followed. And vice versa if the cash rate were to fall.

For fixed rate home loans, these changes may not be felt until the fixed period ends. One advantage of locking in your home loan rate is that you can avoid market fluctuations for that fixed period. Although once this ends you may find your home loan reverts to a higher variable interest rate.

Is there a ‘benchmark’ average home loan interest rate?

While the cash rate is one option homeowners have to track how interest rates may fluctuate, you may be curious if there is a way to source the current average interest rates charged on home loans.

Luckily, this information is available online at the RBA’s website. You may view the current Lender’s Interest Rates here, published 25 business days after the end of each month.

For example, the latest RBA Lender’s Interest Rates at the time of writing this show that owner-occupier variable home loans for new and existing customers have been on a downward trend since July 2019. This mirrors the movement of the cash rate, which has fallen in this time frame.

Rba-housing-lending-owners-rates

For those who love data, you can also download an excel sheet outlining more details about the Housing Lending Rates here.

What the RBA’s Lender’s Interest Rates may show is whether or not the interest rate your home loan lender charges you is higher or lower than average. This is true for both new would-be borrowers and current mortgage holders.

If you don’t believe your current home loan is charging you a competitive interest rate, or if your mortgage repayments are starting to negatively impact your household budget, it may be worth considering calling your bank and asking for a lower rate.

As you can see from the above graph, home loan lenders will historically offer new customers lower interest rates. There’s no reason you cannot call up your bank and request one of these lower rates as you are a loyal customer.

If your lender won’t budge, it may be worth considering refinancing to a lower rate lender. Use comparison tools like rate tables and our Mortgage Repayment Calculator to discover potentially options that suit your financial situation and budget.

Disclaimer

This article is over two years old, last updated on March 21, 2022. While RateCity makes best efforts to update every important article regularly, the information in this piece may not be as relevant as it once was. Alternatively, please consider checking recent home loans articles.

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This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.