February finishes with mortgage rate rises

Several lenders increased variable interest rates on selected home loans in the last week of February, though there were also cuts to some fixed rate loans.

Auswide increased both its fixed and variable rates for owner occupiers and investors, with the smallest increase being by 3 basis points, and the largest increases being by 30 basis points. 

Auswide Home Loan New Rate New CR Old Rate Old CR Rate changes
Freedom Package Home Loan Plus Discount Fixed (Principal and Interest) 3 Years 3.79 4.6 3.76 4.59 0.03
Freedom Package Home Loan Plus Discount Variable (Principal and Interest) (LVR < 90%) 3.69 4.08 3.64 4.03 0.05
Home Loan Plus (Interest Only) 5.61 5.76 5.48 5.63 0.13
Home Loan Plus (Principal and Interest) 5.61 5.76 5.48 5.63 0.13
Line of Credit Home Loan 6.06 5.93 0.13
Line of Credit Investment Loan 6.58 6.45 0.13
Freedom Package Home Loan Plus (Principal and Interest) (LVR 90%-95%) 4.53 4.9 4.38 4.76 0.15
Investment Loan Plus (Interest Only) 6.39 6.54 6.23 6.38 0.16
Investment Loan Plus (Principal and Interest) 6.39 6.54 6.23 6.38 0.16
Freedom Package Home Loan Plus Fixed (Principal and Interest) 4 Years (LVR 90%-95%) 4.9 4.94 4.7 4.87 0.2
Freedom Package Home Loan Plus Fixed (Principal and Interest) 5 Years (LVR 90%-95%) 5 5.01 4.8 4.93 0.2
Freedom Package Home Loan Plus Fixed (Principal and Interest) 1 Year (LVR 90%-95%) 4.39 4.76 4.09 4.73 0.3
Freedom Package Home Loan Plus Fixed (Principal and Interest) 2 Years (LVR 90%-95%) 4.49 4.78 4.19 4.72 0.3
Freedom Package Home Loan Plus Fixed (Principal and Interest) 3 Years (LVR 90%-95%) 4.49 4.78 4.19 4.71 0.3

Several of MyState Bank’s variable interest rates were also increased this week, with selected interest-only home loans seeing rate rise by 10 basis points, while some principal and interest loans increased their interest by 25 basis points.

MyState Bank Home Loan Rate New CR Old Rate Old CR Rate change
Basic Variable Home Loan (Interest Only) (LVR < 80%) 4.18 3.94 4.08 3.93 0.1
Basic Variable Investment Loan (Interest Only) (LVR < 80%) 4.38 4.16 4.28 4.15 0.1
Basic Variable Investment Loan (Interest Only) (LVR 80%-90%) 4.58 4.38 4.48 4.37 0.1
Special Residential Home Loan (Interest Only) (LVR < 80%) 4.38 4.16 4.28 4.15 0.1
Special Residential Investment Loan (Interest Only) (LVR < 80%) 4.58 4.36 4.48 4.35 0.1
Special Residential Investment Loan (Interest Only) (LVR 80%-90%) 4.78 4.58 4.68 4.57 0.1
Standard Variable Home Loan (Interest Only) 5.62 5.42 5.52 5.41 0.1
Standard Variable Investment Loan (Interest Only) 5.62 5.42 5.52 5.41 0.1
Basic Variable Home Loan (Principal and Interest) (LVR 90%-95%) 4.64 4.71 4.39 4.46 0.25
Special Residential Home Loan (Principal and Interest) (LVR 90%-95%) 4.84 4.91 4.59 4.66 0.25

However, People’s Choice Credit Union cut fixed rates on selected loans by 5 to 10 basis points this week.

People’s Choice Credit Union Home Loan Rate New CR Old Rate Rate change
2 Year Fixed Package (Owner Occupied, Principal & Interest) 3.69 4.66 3.79 -0.10
Year Fixed Package (Investment, Principal & Interest) 3.84 5.20 3.94 -0.10
First Home Buyer 3 Year Fixed Package (Owner Occupied, Principal & Interest) 3.84 4.64 3.89 -0.05
First Home Buyer 3 Year Fixed Package (Owner Occupied, Interest Only) 4.34 5.16 4.39 -0.05
Home, Construction & Low Doc 2 Year Fixed (Owner Occupied, Principal & Interest)
3.84 5.17 3.94 -0.10

These changes wrap up a February where several lenders adjusted their interest rates up or down, including Suncorp, Bendigo Bank and Credit Union SA, St.George and AMP, Macquarie Bank and ME Bank.

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Learn more about home loans

What is 'principal and interest'?

‘Principal and interest’ loans are the most common type of home loans on the market. The principal part of the loan is the initial sum lent to the customer and the interest is the money paid on top of this, at the agreed interest rate, until the end of the loan.

By reducing the principal amount, the total of interest charged will also become smaller until eventually the debt is paid off in full.

What is an interest-only loan? How do I work out interest-only loan repayments?

An ‘interest-only’ loan is a loan where the borrower is only required to pay back the interest on the loan. Typically, banks will only let lenders do this for a fixed period of time – often five years – however some lenders will be happy to extend this.

Interest-only loans are popular with investors who aren’t keen on putting a lot of capital into their investment property. It is also a handy feature for people who need to reduce their mortgage repayments for a short period of time while they are travelling overseas, or taking time off to look after a new family member, for example.

While moving on to interest-only will make your monthly repayments cheaper, ultimately, you will end up paying your bank thousands of dollars extra in interest to make up for the time where you weren’t paying off the principal.

How can I calculate interest on my home loan?

You can calculate the total interest you will pay over the life of your loan by using a mortgage calculator. The calculator will estimate your repayments based on the amount you want to borrow, the interest rate, the length of your loan, whether you are an owner-occupier or an investor and whether you plan to pay ‘principal and interest’ or ‘interest-only’.

If you are buying a new home, the calculator will also help you work out how much you’ll need to pay in stamp duty and other related costs.

What is a fixed home loan?

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

What is the difference between fixed, variable and split rates?

Fixed rate

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Variable rate

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

Split rates home loans

A split loan lets you fix a portion of your loan, and leave the remainder on a variable rate so you get a bet each way on fixed and variable rates. A split loan is a good option for someone who wants the peace of mind that regular repayments can provide but still wants to retain some of the additional features variable loans typically provide such as an offset account. Of course, with most things in life, split loans are still a trade-off. If the variable rate goes down, for example, the lower interest rates will only apply to the section that you didn’t fix.

What is a variable home loan?

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

What is a standard variable rate (SVR)?

The standard variable rate (SVR) is the interest rate a lender applies to their standard home loan. It is a variable interest rate which is normally used as a benchmark from which they price their other variable rate home loan products.

A standard variable rate home loan typically includes most, if not all the features the lender has on offer, such as an offset account, but it often comes with a higher interest rate attached than their most ‘basic’ product on offer (usually referred to as their basic variable rate mortgage).

Who has the best home loan?

Determining who has the ‘best’ home loan really does depend on your own personal circumstances and requirements. It may be tempting to judge a loan merely on the interest rate but there can be added value in the extras on offer, such as offset and redraw facilities, that aren’t available with all low rate loans.

To determine which loan is the best for you, think about whether you would prefer the consistency of a fixed loan or the flexibility and potential benefits of a variable loan. Then determine which features will be necessary throughout the life of your loan. Thirdly, consider how much you are willing to pay in fees for the loan you want. Once you find the perfect combination of these three elements you are on your way to determining the best loan for you. 

Interest Rate

Your current home loan interest rate. To accurately calculate how much you could save, an accurate interest figure is required. If you are not certain, check your bank statement or log into your mortgage account.

What is the best interest rate for a mortgage?

The fastest way to find out what the lowest interest rates on the market are is to use a comparison website.

While a low interest rate is highly preferable, it is not the only factor that will determine whether a particular loan is right for you.

Loans with low interest rates can often include hidden catches, such as high fees or a period of low rates which jumps up after the introductory period has ended.

To work out the best value for money, have a look at a loan’s comparison rate and read the fine print to get across all the fees and charges that you could be theoretically charged over the life of the loan.

What is a guarantor?

A guarantor is someone who provides a legally binding promise that they will pay off a mortgage if the principal borrower fails to do so.

Often, guarantors are parents in a solid financial position, while the principal borrower is a child in a weaker financial position who is struggling to enter the property market.

Lenders usually regard borrowers as less risky when they have a guarantor – and therefore may charge lower interest rates or even approve mortgages they would have otherwise rejected.

However, if the borrower falls behind on their repayments, the lender might chase the guarantor for payment. In some circumstances, the lender might even seize and sell the guarantor’s property to recoup their money.

How do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.

What is breach of contract?

A failure to follow all or part of a contract or breaking the conditions of a contract without any legal excuse. A breach of contract can be material, minor, actual or anticipatory, depending on the severity of the breaches and their material impact.