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Five ways to protect your finances from a COVID-19 hangover

Five ways to protect your finances from a COVID-19 hangover

The economic impact of COVID-19 is expected to last for two years, according to research from accounting firm KPMG. But there are ways that everyday Aussies can protect their finances for the foreseeable future.

Two-year COVID-19 hangover

Research obtained by The Australian from KPMG indicates that it may take until at least September next year for the Australian economy to recover – 18 months after the coronavirus began to adversely affect the country.

This research also shows “economic activity in the accommodation and food services sector will be half what it was by June 2020 before charting a long and painful return to pre-COVID levels of output by March 2022, almost two years later”, according to The Australian.

This two-year slow return is similarly predicted for the retail sector, with arts and recreation expected to suffer a “40 per cent hit to output”, staying at low levels until December 2022, as noted in the KPMG research.

Is now the time to withdraw superannuation?

Meanwhile, Australians that are doing it tough have been turning to their superannuation as a means to get through the COVID-19 economic strain.

The Australian Prudential Regulation Authority’s (APRA’s) latest data on the temporary early release of superannuation scheme showed that, as of 3 May, superannuation funds had issued early release payments to 830,000 members worth a total of $6.3 billion.

Aussies who withdrew their super took a payment of $7,629, on average. The average processing time was 3.1 days after receiving the application from the Australian Tax Office.

However, some experts aren’t convinced that this is the wisest move to make.

ISA Chief Executive Officer Bernie Dean said of the superannuation scheme: “It is tempting to tap into your super early, some may want to do so as a savings buffer, but nothing in life is for free and cracking open your nest egg comes at steep cost – it should be treated as a last resort.”

Further, Chant West data found that median growth superannuation funds declined by about 10 per cent in the three months to March 2020. With further economic decline expected, some Aussies may be wondering if withdrawing from their already impacted super is really the best option available.

Ways to protect your finances from Covid-19

There are other ways everyday Aussies can try to protect their finances now, so that they may potentially be in a safer position over the next two years.

  • 1. Refinance to a lower rate home loan

COVID-19’s impact on the economy has been significant, but for homeowners there is a silver lining. Interest rates are the lowest they’ve been in history, thanks to five Reserve Bank of Australia (RBA) cash rate cuts since June last year. This means there are historically low interest rates up for grabs for those in a position to refinance to a lower rate lender.

For example, if you had a $350,000 30-year mortgage with the average variable, owner-occupier, principal and interest mortgage rate for April of 3.46 per cent, your monthly repayments would be $1,564.

However, if you switched to one of the lowest rate loans on the market of 2.09%, your repayments would be $1,309. This is a potential saving of $255 a month, or $3,060 a year.

Lowest fixed home loan rates for owner-occupiers

LenderLoanAdvertised rate (%)Comparison rate (%)
INGOrange Advantage Home Loan Fixed 2 Years



Reduce Home LoansHome Owners Dream Fixed 3 Years



Freedom LendFreedom Fixed Home Loan 2 Years



Source: RateCity.com.au. Data accurate as of 13.05.2020.

Lowest variable home loan rates for owner-occupiers

LenderLoanAdvertised rate (%)Comparison rate (%)
Homestar FinanceStar Gold Home Loan



Reduce Home LoansRate Slasher Variable Home Loan



Well Home LoansWell Balanced Home Loan



Source: RateCity.com.au. Data accurate as of 13.05.2020.

  • 2. Pay off your debt(s)

Whether you’ve lost your income or fallen ill, it’s a challenging enough time without having to worry about how you’ll pay off your debts.

RateCity’s Debt Guide can help you get out of debt and put yourself in a better financial position for the future.

If you have multiple sources of debt, trying to manage them may have become increasingly difficult. One option you may consider is a debt consolidation loan. This allows you to roll your existing debts into one loan, so you can simplify how much interest you’re paying, as well as cut down on fees and other costs.

If you have credit card debt, personal loans generally have lower interest rates than credit cards. This may help prevent your debt from getting out of control.

  • 3.Switch to a lower rate credit card

If you have a credit card with a high interest rate, and you’re often unable to pay your credit card balance off each payment cycle, you may want to consider switching to a lower rate option.

Whether it’s with your current credit card provider or with a new provider, comparison tables can help you compare new low-rate options you might switch to. Just be sure to check out what fees and other costs may be associated with a card swap.

  • 4.Switch up your savings accounts

As the RBA has cut the cash rate to historic lows, interest rates on savings accounts have followed suit. You may feel as if your savings account is nothing more than a safe place to store your money. However, there are still savings accounts offering interest rates above inflation (2.2% according to the RBA), if you’re willing to switch.

Some savings accounts provide high interest rates as a bonus offer for an introductory period. Once that period ends, your interest rate reverts to their standard rate, which is typically much lower.

These introductory rates may be able to survive RBA cash rate cuts. The big four banks have promised that the bonus rate you earn will be locked in for the entire introductory period. Not all banks do this, so keep this in mind when you’re doing your research.

If you’re willing to put in the time and effort, you could hop between high-interest savings account. This would involve switching to savings accounts with high-interest introductory offers and switching again whenever the offer ends. While this process may involve some paperwork and effort, it could see your savings account better off over the next two years.

  • 5.Lock in a high TD rate

One way to ensure your savings have a locked-in interest rate is to consider a term deposit account.

Term deposits allow you to put your money in a secured deposit for an agreed period of time. It will earn a set interest rate for that time frame too, so if the RBA were to cut cash rates further, your interest rate wouldn’t change.

Highest 3-year term deposit rates

CompanyInterest rate (%)
Judo Bank


Greater Bank


The Mutual


Source: RateCity.com.au. Data accurate as of 13.05.2020.

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This article was reviewed by Finance Writer Alison Cheung before it was published as part of RateCity's Fact Check process.



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Learn more about home loans

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.

How long can you fix a home loan rate for?

Most lenders should let you fix your interest rate for anywhere between one and five years. While rare, a few lenders may offer fixed rate terms for as long as 10 years.

Fixing your home loan interest rate for a longer term can keep your budgeting fairly straightforward, as you shouldn't have to factor in changes to your mortgage repayments if variable rates change, such as when the Reserve Bank of Australia (RBA) changes its rates at its monthly meeting. Additionally, if variable rates rise during your fixed rate term, you can continue to pay the lower fixed rate until the fixed term ends, potentially saving you some money.

Of course, a longer fixed term also means a longer length of time where you may have less flexibility in your home loan repayments. It’s also a longer period where you won’t be able to refinance your mortgage without paying break fees. If variable rates were to fall during this period, you may also be stuck paying a higher fixed rate for a longer period.

What are the different types of home loan interest rates?

A home loan interest rate is used to calculate how much you’ll pay the lender, usually annually, above the amount you borrow. It’s what the lenders charge you for them lending you money and will impact the total amount you’ll pay over the life of your home loan. 

Having understood what are home loan rates in general, here are the two types you usually have with a home loan:

Fixed rates

These interest rates remain constant for a specific period and are a good option if you’re a first-time buyer or if you’re looking for a fixed monthly repayment. One possible downside of a fixed rate is that it may be higher than a variable rate. Also, you don’t benefit from any lowering of interest rates in the market. On the flip side, if rates go up, your rate won’t change, possibly saving you money.

Variable rates

With variable interest rates, the lender can change them at any time. This change can be based on economic conditions or other reasons. Changes in interest rates could be beneficial if your monthly repayment decreases but can be a problem if it increases. Variable interest rates offer several other benefits often not available with fixed rate home loans like redraw and offset facilities and free extra repayments. 

Does the Home Loan Rate Promise apply to discounted interest rate offers, such as honeymoon rates?

No. Temporary discounts to home loan interest rates will expire after a limited time, so they aren’t valid for comparing home loans as part of the Home Loan Rate Promise.

However, if your home loan has been discounted from the lender’s standard rate on a permanent basis, you can check if we can find an even lower rate that could apply to you.

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 comparison rate?

The comparison rate is a more inclusive way of comparing home loans that factors in not only on the interest rate but also the majority of upfront and ongoing charges that add to the total cost of a home loan.

The rate is calculated using an industry-wide formula based on a $150,000 loan over a 25-year period and includes things like revert rates after an introductory or fixed rate period, application fees and monthly account keeping fees.

In Australia, all lenders are required by law to publish the comparison rate alongside their advertised rate so people can compare products easily.

What is the Home Loan Rate Promise?

The Home Loan Rate Promise is RateCity putting its money where its mouth is. We believe that too many Australians are paying too much for their home loans. We’re so confident we can help Aussies save money, if we can’t beat your current rate, we’ll give you a $100 gift card.*

There are two reasons it pays to check your rate with the Home Loan Rate Promise:

  • You can find out how much you could save on your home loan by switching to a loan with a lower interest rate
  • If we can’t beat your current rate, you can claim a $100 gift card with our Home Loan Rate Promise*

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.

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

What is a honeymoon rate and honeymoon period?

Also known as the ‘introductory rate’ or ‘bait rate’, a honeymoon rate is a special low interest rate applied to loans for an initial period to attract more borrowers. The honeymoon period when this lower rate applies usually varies from six months to one year. The rate can be fixed, capped or variable for the first 12 months of the loan. At the end of the term, the loan reverts to the standard variable rate.