2018 home loan rates report: the out-of-cycle rate rises hitting Aussie borrowers hard

Kelly Emmerton   |   23 Apr 2018

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Key points

  • Nearly half of Aussies borrowers have been hit with an out-of-cycle rate rise since August 2016

  • Older Aussies are the least likely to be thinking about refinancing their home loan

  • Snagging a 3.70% rate instead of 4.00%, could save borrowers more than $17,000 over a 25 year, $300,000 home loan

Despite the fact that the Reserve Bank has left the official cash rate on hold at 1.50% for the last 19 months straight, Aussie borrowers are being whalloped with rate rises on their home loans.

“Existing borrowers are being hit with rate rises, but at the same time, offers for new borrowers have been improving,” said Mozo Director Kirsty Lamont.

“That means there are some really rock bottom rates out there that the majority of loyal customers may be missing out on, because they haven’t considered the possibility of switching to a new lender.”

Shock rate rises hitting Aussie borrowers

According to Mozo’s survey, 47% of Aussie borrowers have experienced an out of cycle rate rise since the RBA last made a change in August 2016, with those in the Northern Territory, NSW and WA hit the hardest.

Since the last RBA movement, 43 lenders in the Mozo database have hiked their standard variable interest rates by and average of 0.14%. On the other hand, just 13 lenders decreased standard variable rates, and only by an average of 0.07%.

“Close to half of Aussie borrowers have been smacked with a rate hike, which means loyal customers who are sticking with their lenders are often getting the short end of the stick,” said Lamont.

Amongst these borrowers, the number who’d been hit with rate rises by the big banks was on par with smaller lenders.

“When big banks make a move on rates, smaller lenders often follow, either to remain in step with the market, or because small lenders are often financed by the major players, so it’s a flow-on effect,” explained Lamont.

What sets big banks apart from the competition was customers’ satisfaction with their rate - and not in a good way. While 59% of borrowers with smaller lenders were happy that their rate was competitive, only 30% of big bank customers thought so.

“The problem is that while 70% of big bank customers are unhappy with their home loan rate, only 17% have considered switching. We’re sticking our heads in the sand instead of actively searching for a better deal,” said Lamont.

                             

3.70% the new standard: the home loan rate you should aim for

For a long time, 4.00% was considered a benchmark for home loan interest rates - anything below that could be considered a good deal.

Now, Mozo data shows that the benchmark has dropped to 3.70%. Half the lenders in the Mozo database now offer a home loan with a rate of 3.70% or lower, which means there’s plenty of opportunity for borrowers to snag these super low rates.

“We used to say if you were paying more than 4.00% you were paying too much, but now even that’s too high,” said Lamont.

“And what’s really concerning is that according to Mozo’s research, 44% of Aussies still have a home loan rate above 4.00% today.”

According to Lamont, lenders are reserving the best offers for new customers in order to entice them through the door, while existing, loyal customers are being left out in the cold.

“I’d love to see borrowers start pushing for those better deals, no matter how long they’ve been with a lender. And if your bank won’t come to the party, then it may be time to put your money where your mouth is and switch.”

How likely are we to refinance our home loan?

So just how open are Aussies to changing home loan lenders if they’re getting a raw deal? Not as open as we should be, according to Lamont.

Movers and shakers: Who refinances their home loan?

Refinancing was most popular in NSW and WA, with 20% of borrowers in each state thinking about switching. These states also had some of the highest instances of out-of-cycle rate rises (57% and 52% respectively).

“In NSW, the high cost of housing in hubs like Sydney may have something to do with more borrowers being keen to switch to a better deal and start saving,” said Lamont.

Men are also a little more likely to consider switching (19% compared to 16% of women), but that may reflect the fact that they are also more likely to have a rate above 4.00% (46% compared to 42% of women).

Young Aussies aged 25-34 years were the most likely to have been hit with a rate rise (59%) and to feel they were getting an uncompetitive deal (65%). One quarter of these borrowers had considered switching, which put them ahead of all other age brackets.

“Younger Aussies are really digitally savvy, which may mean they’re more likely to be regularly comparing their home loan rate using comparison sites like Mozo and seeing how valuable and easy it can be to switch,” said Lamont.

                            

Stuck in place: who doesn’t switch their mortgage?

On the other hand, older Aussies are more set in their ways, with the 65 and over cohort the most likely to be with a big bank, the most likely to be paying more than 4.00% interest and the least likely to consider switching.

“In this age bracket, you start looking at borrowers who have retired, and are likely toward the end of their mortgage. It’s much harder for these borrowers to refinance, because banks often don’t consider the pension or super as a source of income for lending purposes,” said Lamont.

“But the fact that this group is also the most likely to be paying more than 4.00% interest underlines the importance of reviewing your mortgage before you hit retirement, and making sure you’re set up with the lowest possible rate you can snag.”

Tasmanians were the least likely to consider switching their mortgage, which may have something to do with the fact that they were also the least likely to have a rate above 4.00% (27%) and some of the most likely to believe they were getting a competitive deal (45%).

Switching wasn’t a priority for borrowers in the Northern Territory either, with only 13% considering it, despite the fact that the top end had the highest number of borrowers paying over 4.00% interest and who had experienced a rate rise (63% each).

                       

Why does refinancing your mortgage matter so much?

You might be wondering what the big deal is, after all, the difference between 4.00% and 3.70% doesn’t seem like that much, right?

Well, consider this. If you were to take out a $350,000 loan over 25 years, with a rate of 4.00%, you might wind up with monthly repayments of $1,584 and pay a total of $175,053 in interest over the life of this loan.

On the other hand, if you spent an hour or two shopping around for a better deal and snagged a 3.70% rate, you’d be paying $1,534 a month, or $160,272 in interest over the life of your loan.

That’s a saving of $17,245 in interest all up, which is definitely better off in your pocket than the bank’s.

“Looking at the national average, 44% of Aussies are paying more than 4.00% on their home loan but just 15.5% are considering switching. There’s a real disconnect there, which could be costing borrowers tens of thousands of dollars,” Lamont said.

Want to know how much you could save? Take our Switch and Save calculator for a spin!

Where to find low home loan rates

Have we convinced you to review your home loan and find a better offer? Great!

The next step is comparing the options out there to see what’s up for grabs, which is where Mozo’s home loan comparison tables come in. Head over to check out some of the top mortgage deals around, and if you’d like to search our entire database for options based on your personal situation, you can compare all home loans as well.

Or, get started by checking out one of the loans in the table below.

Home loan comparisons on Mozo - rates updated daily

  • Essentials Variable 80

    Owner Occupier, Principal & Interest

    3.64% p.a. variable

    3.66% p.a.

    A low-rate home loan that could save you thousands. No monthly or ongoing fees. Unlimited additional repayments. Unlimited free redraws with no minimum redraw amount

    • 3.64% p.a. variable

    • 3.66% p.a.

    • $520

    • $0.00

    • $0.00

    • yes - free

    • yes - free

    • no

    • 80.00%

    • $50,000

    • $2,000,000

    • Variable

    • Principal & Interest

    • Owner Occupier

    • Weekly, Fortnightly, Monthly

    Details Close

  • Select Basic Variable

    LVR<80%, Owner Occupier, Principal & Interest

    3.69% p.a. variable

    3.70% p.a.

    A competitive rate with no ongoing fees. Reduce interest by making additional payments.

    • 3.69% p.a. variable

    • 3.70% p.a.

    • $330

    • $0.00

    • $535.00

    • yes - free

    • yes - free

    • no

    • 80.00%

    • $100,000

    • $5,000,000

    • Variable

    • Principal & Interest

    • Owner Occupier

    • Fortnightly, Monthly

    Details Close

  • Base Variable Rate Home Loan

    Owner Occupier, Principal & Interest

    3.69% p.a. variable

    3.73% p.a.

    $1,250 BONUS WITH AN ELIGIBLE NAB HOME LOAN BANKING BUNDLE*. Low ongoing rate. Free extra repayments and redraw facility. Only 5% deposit and no annual or monthly fees.

    • 3.69% p.a. variable

    • 3.73% p.a.

    • $600

    • $0.00

    • $350.00

    • yes - free

    • yes

    • no

    • 95.00%

    • $20,000

    • -

    • Variable

    • Principal & Interest

    • Owner Occupier

    • Weekly, Fortnightly, Monthly

    Details Close

  • UHomeLoan - Discount Offer

    Owner Occupier, Principal & Interest

    3.59% p.a. variable

    3.59% p.a.

    A low rate Home Loan with no bank fees on variable rate loans. Easy & fast to apply. Choose between flexible repayments and make extra repayments for free on a variable rate home loan.

    • 3.59% p.a. variable

    • 3.59% p.a.

    • $0

    • $0.00

    • $0.00

    • yes - free

    • yes

    • no

    • 80.00%

    • $200,000

    • $699,999

    • Variable

    • Principal & Interest

    • Owner Occupier

    • Weekly, Fortnightly, Monthly

    Details Close

  • Discounted Variable Home Loan

    Owner Occupier, Principal & Interest

    3.72% p.a. variable

    4.12% p.a.

    Experts Choice - Australia's Best Customer-Owned Banking & Home Lender of the Year 2018

    • 3.72% p.a. variable

    • 4.12% p.a.

    • $0

    • $395.00 yearly

    • $0.00

    • yes - free

    • yes - free

    • yes

    • 90.00%

    • $150,000

    • -

    • Variable

    • Principal & Interest

    • Owner Occupier

    • Weekly, Fortnightly, Monthly

    Details Close

*WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

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