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How much could a mortgage on an average Australian property cost?

How much could a mortgage on an average Australian property cost?

According to the Australian Bureau of Statistics (ABS), property prices in all eight capital cities rose in December 2020, for the first time since December 2014. With Australia’s average house price rising, and mortgage interest rates at record lows, what does this mean for the average cost of a home loan?

According to the ABS, the largest property price rises were recorded in Hobart (6.4 per cent), Canberra (5.2 per cent) and Perth (4.2 per cent), resulting in the mean price of Australian residential dwellings rising $21,300 to $728,500.

It’s well known that it doesn’t pay to be loyal to your bank, at least when it comes to home loans, with most mortgage lenders offering significantly lower interest rates to new customers than what their existing customers are paying. According to the Reserve Bank of Australia (RBA), in January 2021 the average owner occupier variable housing rate for outstanding loans was 3.14 per cent, while for new loans it was just 2.79 per cent.

Crunching the numbers

Assuming you had the 20 per cent deposit or equity required to avoid Lenders Mortgage Insurance (LMI), you’d be looking for a loan of $582,800 to buy a $728,500 property.

With a 30-year loan term, your monthly principal and interest payments would be $2501. Assuming you’re paying principal and interest at the RBA’s average rate for existing loans of 3.14 per cent, you’d pay around $317,679 in interest over a 30-year term, and your property would ultimately end up costing you $900,479.

If you instead paid the RBA’s average rate for new loans a rate of 2.79 per cent, your monthly repayments would be $2392, meaning you’d pay $278,174 in total interest over 30 years, and your property would ultimately cost you $860,974

That’s a difference of around $109 per month in the average Australian mortgage holder’s household budget, for a total of $39,505 over 30 years.

Interest rate Monthly repayment Total interest Total loan cost 
3.14 per cent $2501 $317,679 $900,479 
2.79 per cent $2392 $278,174 $860,974
Difference$109$39,505$38505

These calculations are for illustrative purposes only, don’t include the cost of home loan fees, and don’t reflect changes to variable interest rates over time. You can make your own calculations to estimate your home loan repayments in relation to your own personal financial situation.  

To fix or not to fix

Keep in mind that some of the lowest interest rates currently on the market are fixed rates, which can lock in the same repayments for as long as five years. While these lower repayments may help you save money in your household budget over the short term, keep in mind that once the fixed rate term expires and the loan reverts to the lender’s variable rate, your repayments could be dramatically affected. 

Also remember that a home loan’s interest rate is just one of many factors to consider before you apply for a new home loan or refinance an existing loan. Look at the mortgage’s fees, features and other benefits before your make any changes, and consider contacting a mortgage broker for more advice on which mortgage options may best suit your personal financial situation.

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

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