Most borrowers will be under serious financial stress if interest rates rise above 5%

A white house rides a rising interest rate line on a blue field.

Home loan owners have been feeling the squeeze lately. In the past few months alone, rising inflation, cost of living pressures, and a long awaited RBA cash rate decision have been fuelling a fixed-rate hike scramble. 

Customers at major Australian banks, including CommBank, NAB, ANZ, and Westpac, have been especially affected, which is bad news for the nearly 80% of Aussies with a Big Four home loan.

As a result, almost all fixed offers with interest rates below 2% p.a. have evaporated from the market entirely.

Now, new Mozo research reveals that by the time rates hit 5% (possibly as early as June 2023), over two thirds (64%) of borrowers could be under serious financial stress.

RELATED: How to handle all the rate rise talk

Home-buyers who benefited from the 2021 property boom now facing serious financial music

Blue and purple cartoon house steps with rising interest rate arrows.

Since November 2020, the official cash rate has been pegged at an 0.1% all-time low to offset the pandemic recession and encouraging spending. 

Lenders cut home loan interest rates accordingly, which lured cashed-up buyers all over Australia into the property market and sparked the enormous 2021 property boom

However, the Consumer Price Index rose a startling 5.1% last quarter, signalling dire runaway inflation. In response, the RBA announced on 3 May after its monthly board meeting that it would be lifting the cash rate 25 basis points to 0.35%.

While this is good news for savings accounts and term deposits, a cash rate increase will inevitably push up home loan costs as well – especially for variable home loans.

Fixed home loan interest rates have rapidly risen back to pre-pandemic levels:

“The last cash rate increase was over 11 years ago, so many borrowers will have never experienced a home loan interest rate hike,” says Mozo spokesperson, Tom Godfrey. “It’s little wonder many people are worried about the impact it could have on their finances.”

Concerningly, Mozo found that 8% of borrowers believe any home loan rate increase would put them in serious financial trouble. More than half (55%) hadn’t even stress-tested their ability to make repayments at a higher rate.

“It’s never too late to stress test your ability to make repayments,” Godfrey advises. “Something as simple as putting your home loan amount into a mortgage rate change calculator can help you to budget and reduce your stress.”

Rising interest rates may also be causing falling house prices, with more than half (59%) of homeowners fearing losing equity in their home as a result.

“Losing equity in your home could become a problem if you’re forced to sell or refinance,” warns Godfrey, “but if you’re able to hold on, continuing to pay down your principal is one of the best safeguards you can put in place.”

Loan details

Rate change

Repayment change if rates go up

What can borrowers do to handle rising interest rates

A woman runs along a green path collage out from her laptop.

Economic uncertainty can make it hard to gauge where the home loan market will ultimately go. Research is therefore key to handling rising living costs and rate changes.

For example, while most Aussies bank with the Big Four, many online lenders offer more competitive interest rates. Currently, the cheapest available in Mozo’s database is from Reduce Home Loans, with a variable rate of 1.79% p.a. – over 120 basis points cheaper than the average variable home loan rate of 3.02% p.a.

RELATED: Home loan rate check: How do ANZ, CBA, NAB and Westpac compare?

Multiple lenders also offer nearly $3,000 cashback to refinance your home loan, while CommBank’s new green home loan program rewards eco-friendly customers with cheaper variable interest rates. 

“Comparing what’s on offer and switching to the best deal you can find might help to offset future rate increases,” says Godfrey.

So whether you budget or refinance, it’s time to plan for what’s to come.

Looking for the best home loan? Compare a selection below, or head over to our home loan hub for more guides and updates.

Home loan comparisons on Mozo

Mozo may receive payment if you click the products below. We don’t compare the entire market, but you can search our database of 473 home loans.
Last updated 22 June 2024 Important disclosures and comparison rate warning*
  • Basic Home Loan

    • Owner Occupier
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.16 % p.a.
    Initial monthly repayment
    $3,043
    Go to site

    Enjoy a low rate home loan with $0 application fee and $0 ongoing fees. Flexibility to split your loan and set different repayment types. Fee free redraw from your loan using online banking. Flexible ways to repay. 40% Deposit required.

  • Unloan Variable

    • Owner Occupier
    • LVR <80%
    Interest rate
    5.99 % p.a.
    Variable
    Comparison rate
    5.90 % p.a.
    Initial monthly repayment
    $2,995
    Go to site

    Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.

  • Offset Home Loan

    • Owner Occupier
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.39 % p.a.
    Initial monthly repayment
    $3,043
    Go to site

    Ability to open up to 10 offset accounts per loan account. Fast online application. Linked Debit Mastercard® with fee-free access at ATMs across Australia. Package a credit card with your home loan and the annual card fee will be waived (T&Cs apply). 40% deposit required.

  • Unloan Variable

    • Owner Occupier
    • LVR <80%
    Interest rate
    5.99 % p.a.
    Variable
    Comparison rate
    5.90 % p.a.
    Initial monthly repayment
    $2,995
    Go to site

    Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.

  • Discount Variable Home Loan

    • Owner Occupier
    • LVR<70%
    Interest rate
    5.99 % p.a.
    Variable
    Comparison rate
    6.01 % p.a.
    Initial monthly repayment
    $2,995
    Go to site

    A low rate home loan for owner-occupiers packed with great features including unlimited extra repayments, free online redraw, no application or monthly admin fees. Rate will vary depending on LVR. Winner of a Mozo Experts Choice 2024 Low Cost Home Loan Award^

  • Variable Home Loan 90

    • Principal and Interest
    • LVR <90%
    Interest rate
    6.04 % p.a.
    Variable
    Comparison rate
    6.06 % p.a.
    Initial monthly repayment
    $3,011
    Go to site

    Affordable home loan rate for buyers or refinancers. No monthly or ongoing fees. Option to add an offset for 0.10%. Access to savings with unlimited redraws available. Minimum 10% deposit required.

  • Fixed Rate Loan

    • Owner Occupier
    • Principal & Interest
    • LVR <80%
    Interest rate
    6.09 % p.a.
    Fixed 3 years
    Comparison rate
    6.15 % p.a.
    Initial monthly repayment
    $3,027

    Additional repayments of up to $10K per fixed year. Interest rate discounts available. Waiver of $499 application fee when combined with an Orange Advantage Home Loan.

  • The Better Home Loan Special Offer

    • Owner Occupier
    • Principal & Interest
    • LVR<80%
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.14 % p.a.
    Initial monthly repayment
    $3,043
    Go to site

    Enjoy a variable rate home loan with a bunch of features from Police Credit Union. Make extra repayments at any time without penalty. No monthly, annual or upfront fees. Free online redraw. Minimum 20% deposit. Qualifying criteria applies. Minimum loan amount is 200K. For new customers only. Mozo Experts Choice Home Lender Credit Union of the Year 2023.

  • Basic Home Loan

    • Owner Occupier
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.16 % p.a.
    Initial monthly repayment
    $3,043
    Go to site

    Enjoy a low rate home loan with $0 application fee and $0 ongoing fees. Flexibility to split your loan and set different repayment types. Fee free redraw from your loan using online banking. Flexible ways to repay. 40% Deposit required.

  • Mortgage Simplifier

    • LVR<80%
    • Owner Occupier
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.17 % p.a.
    Initial monthly repayment
    $3,043

    Get a competitive variable rate with ING’s Mortgage Simplifier. Free extra repayments, no monthly or annual fees. Freedom to make free extra repayments or redraws.

  • Offset Home Loan

    • Owner Occupier
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.39 % p.a.
    Initial monthly repayment
    $3,043
    Go to site

    Ability to open up to 10 offset accounts per loan account. Fast online application. Linked Debit Mastercard® with fee-free access at ATMs across Australia. Package a credit card with your home loan and the annual card fee will be waived (T&Cs apply). 40% deposit required.

  • Basic Home Loan

    • Fixed
    • Owner Occupier
    • Principal & Interest
    • LVR<70%
    Interest rate
    6.25 % p.a.
    Fixed 3 years
    Comparison rate
    6.20 % p.a.
    Initial monthly repayment
    $3,079
    Go to site

    No upfront or ongoing fees. Free extra repayments and redraw facility. Option to earn Qantas points. Min 30% deposit required. Borrow up to $750,000.

  • Offset Home Loan

    • Fixed
    • Owner Occupier
    • Principal & Interest
    • LVR <70%
    Interest rate
    6.25 % p.a.
    Fixed 3 years
    Comparison rate
    6.42 % p.a.
    Initial monthly repayment
    $3,079
    Go to site

  • Fixed Rate

    • Owner Occupier
    • Principal & Interest
    • <80% LVR
    Interest rate
    6.59 % p.a.
    Fixed 3 years
    Comparison rate
    7.06 % p.a.
    Initial monthly repayment
    $3,190

    Enjoy up to $3000 cashback for eligible first home buyers and $2000 cashback for refinancers on eligible home loans with the ANZ Fixed Rate Home Loan. Get the security of repayment certainty with a competitive locked in rate. No ongoing fees to pay. Offset account on 1-year fixed loans ($10/month fee applies). Interest-only payments allowed.

image of houses

Need help with refinancing?

You might have questions that need personal answers. We’ve teamed up with the mortgage brokers at Lendi to get you the answers you need, and a home loan deal you deserve.

Learn more

* 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.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.

While we pride ourselves on covering a wide range of products, we don't cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.