How to deal with rising home loan rates in 2023

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For several years, borrowers enjoyed enjoyed historically low mortgage rates. But a series of steep interest rate increases by the Reserve Bank of Australia beginning last year now has us looking at a much different picture. 

Rapidly rising repayments might have plenty of Aussie households on edge, but there are a few things you can do to cope with a higher interest rate environment. We explore a few below.

1. Make extra repayments

Anything you pay on top of your regular repayments goes towards paying down the principal portion of your loan. Since interest is charged on the principal, if you can chip away at it ahead of schedule you’ll pay less in interest overall.

Use our extra repayments calculator to work out how much time and money you could save.

2. Make a lump sum payment

Whether it’s a tax return, a birthday gift, or part of an inheritance, putting any large sums of money you receive towards your mortgage will chip away at the outstanding balance, reducing the amount of interest that's charged on your loan.

3. Put your offset account to use

An offset account is a transaction account linked to your home loan, with one key difference: the funds held in the offset account are offset against the loan principal. 

For example, if you have a loan balance of $400,000 and $50,000 in your offset account, you’ll only be charged interest on $350,000.

According to CommBank, a borrower with a $500,000 loan and an interest rate of 4.50% p.a. can save around $60,000 over 30 years, assuming they have a starting offset balance of $10,000 and deposit $100 each month.

4. Refinance your loan

If your current home loan wasn’t all that competitive to begin with, it’ll look downright unappealing once interest rates have reached their peak. 

Make sure you browse other options on the market to see how yours stacks up, and if there are cheaper loans out there, it might be worth refinancing.

5. Reduce your spending

Sometimes it can help to take a close look at your finances and see if there are any opportunities to cut back. You’d be surprised how quickly small, regular purchases can add up, and if you can eliminate them it can free you up to make extra repayments on your loan.

6. Make more frequent repayments

Depending on how your lender calculates your repayments, switching your repayment cycle from monthly to fortnightly or weekly might save you money in the long run. 

How so? If you’re currently paying $2,000 each month, your total yearly repayments will total $24,000. But if your lender halves the amount you pay monthly and charges it every two weeks, you’ll actually pay back $26,000 over the year.

Should you consider a fixed rate?

Unfortunately, borrowers looking to lock in a low rate will have a hard time finding worthwhile options. Long before the RBA began its tightening cycle lenders were getting ahead of the curve by raising their fixed rates.

Among lenders we track, the average 2-year fixed rate now sits at 5.82% p.a. while the average 5-year rate is even higher at 6.45% p.a. For comparison, the average variable rate in our database is currently 5.68% p.a.

To see what your repayments might look like under rate hikes of various sizes, use our rate change calculator. And for an idea of where interest rates currently sit, visit our home loan comparison page or browse the selection below.

Rate change calculator

Loan details

Rate change

Repayment change if rates go up

Home loan comparisons on Mozo - last updated 30 May 2024

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  • Basic Home Loan

    Fixed, Owner Occupier, Principal & Interest, LVR<70%

    interest rate
    comparison rate
    Initial monthly repayment
    6.25% p.a.
    fixed 3 years
    6.20% p.a.

    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.

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    Details
  • Variable Home Loan 90

    Principal and Interest, LVR <90%

    interest rate
    comparison rate
    Initial monthly repayment
    6.04% p.a. variable
    6.06% p.a.

    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.

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    Details
  • Discount Variable Home Loan

    Owner Occupier, LVR<70%

    interest rate
    comparison rate
    Initial monthly repayment
    5.99% p.a. variable
    6.01% p.a.

    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^

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  • The Better Home Loan Special Offer

    Owner Occupier, Principal & Interest, LVR<80%

    interest rate
    comparison rate
    Initial monthly repayment
    6.14% p.a. variable
    6.14% p.a.

    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.

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* 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

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