In Australia, lenders set their mortgage rates by adding a margin to the Reserve Bank of Australia’s (RBA’s) official cash rate.
The RBA’s cash rate takes into account several factors, including the inflation rate. In February 2020, the RBA decided to keep the cash rate at 0.1 per cent as the inflation rate was still not within the targeted range of 2 to 3 per cent. The RBA says this target may not be achieved until 2024.
Keeping an eye on inflation can also be a useful indicator of what the RBA may do with rates and in turn, what lenders may do. However, it’s worth keeping in mind it’s not an exact science and sometimes lenders don’t follow the RBA’s rate moves.
How does looking at home loan interest rate history help property investors?
Anyone taking out a mortgage is likely to be interested in keeping their costs low and controlling the interest payable on the loan can result in significant savings. Even if a borrower chooses a variable rate mortgage, they could opt to lock in the interest rate for some years to avoid paying more in interest if the rate increases in this duration.
However, if one was to look at the average mortgage rate history in the early 2020s they would end up with a very different picture compared to if they were to look at average rates in the 1980s, which were comparatively very high.
Those interested in looking up historical mortgage rates - going back to 1959 - can visit the RBA’s Statistical Tables webpage and download the indicator lending rates data. As the name suggests, these are only indicators. While they can be useful in comparing at a glance the likely interest rates for different home loan products, the actual rate offered by lenders will probably differ.
There are a couple of historical trends that may be of interest. Perhaps unsurprisingly, owner-occupiers have historically been offered lower average rates than investors. Also, borrowers with three-year fixed terms have benefited from lower interest rates than borrowers with other products, according to the data. Again, past data is not necessarily an indicator of future trends but can be a helpful tool in the toolbox.
How can borrowers ensure they get one of the best home loan interest rates?
If you track home loan interest rate history, you can check whether or not your lender has lowered the rate on your variable-rate mortgage in tandem with the cash rate. If they’ve not changed the interest rate, you could compare the interest rates offered by other lenders and refinance your mortgage.
Even if your lender has brought down the interest rate, you can check if another lender is offering an even lower interest rate through the comparison. Further, you might find new mortgage lenders whose products weren’t available earlier and might be more suitable than your current mortgage.
You should remember that the interest rate a lender offers you can depend on your financial circumstances as well. For instance, if your credit score is low or you don’t earn a sufficiently high income, lenders may not offer you home loans with the preferred interest rate. You may then need to consult a mortgage broker who can connect you with lenders offering a suitable mortgage for your situation.