Average home loan interest rates have declined by between 33 and 45 basis points over the last quarter, according to the Reserve Bank of Australia (RBA). While this has reportedly led more Australians to refinance their mortgages and top up their offset accounts, fewer new home loans have been recorded.
Interest rates take a dive
According to the RBA’s Statement on Monetary Policy, interest rates on variable and fixed rate housing loans have declined substantially since the end of February 2020.
The biggest declines were recorded for new fixed rate housing loans, which fell by around 65 basis points during this period (more than the average shown in the table, due to delays associated with the expiry of existing fixed rate loan periods).
Average outstanding housing rates - June 2020
|Loan type||Interest rate||Change since February 2020 (basis points)|
|Variable rate loans - owner-occupier||3.24%||-33|
|Variable rate loans - investor||3.61%||-35|
|All variable rate loans||3.37%||-34|
|Fixed rate loans - owner-occupier||3.28%||-45|
|Fixed rate loans - investor||3.64%||-37|
|Principal and interest*||3.28%||-35|
*weighted average across fixed and variable rate loans
Sources: APRA, RBA
The RBA also recorded a strong swing towards fixed-rate home loans in the most recent quarter.
RateCity has also observed fixed rates dive in recent months, with some of the lowest fixed rates on record being released.
Aussies top up their offset accounts
While many Australian mortgage holders saw their interest rates slashed over the June quarter, or were able to put their loan on a 6-month mortgage holiday, the RBA found that many of these mortgage holders also put more of their spare cash into their offset accounts.
According to the RBA, Aussies deposited the most into their offset accounts in April and May, when:
- Many mortgage holders were saving money for precautionary reasons, and;
- More containment measures were introduced to limit the spread of the virus, reducing opportunities for spending.
The RBA also mentioned money from the early release of superannuation as possibly contributing to higher offset account balances.
Fewer new loans this quarter
The RBA also found that new housing loan commitments have declined since the end of March this year. This was attributed to several causes, including:
- Less demand for new housing finance, partially due to uncertainty associated with the pandemic, and;
- Tightening lending standards, with lenders taking more time to assess loan applications, some of which are requiring more recent verification of income than previously, or lower maximum LVRs.
What this all means to you
If you’re in the market for a home loan, it’s clear there are a lot of low-rate options available. However, instead of going straight to the offer with the lowest interest rate, it’s important to also check what features and benefits the lender offers, and what terms and conditions may apply.
As recorded by the RBA, fixed-rate home loans have seen some of the deepest falls in recent months. Choosing a home loan with a low fixed rate could let you enjoy consistently low repayments for as long as the fixed term lasts. Just remember that your loan will revert to the lender’s variable rate once this fixed term is up, and if you decide to refinance early, you could be stuck paying expensive break fees.
If you’re looking to build up an emergency fund for the future, one option could be to deposit your spare cash in your home loan’s offset account. This can help shrink your home loan interest charges, which can in turn help you clear your debt faster and pay off your property sooner. Keep in mind that offset accounts tend to be more commonly available with variable rate home loans than fixed rate options.
Whether you’re applying for a new home loan or refinancing your existing mortgage, it’s important to pay close attention to the lender’s eligibility criteria. To qualify for some of the lowest interest rates, you may need to provide a larger house deposit, or provide extra proof of income to demonstrate that you can comfortably afford the home loan.
If you’re unsure which home loan may be right for you, or which mortgage lender is likely to accept you application, contacting a mortgage broker for expert advice could be an option to consider.