Home loan interest rates could rise soon, what will that mean for your mortgage?

Aerial shot of homes.

While the Reserve Bank of Australia has insisted that interest rates won’t rise until 2024 at the earliest, a growing number of economists are beginning to question the Bank’s outlook.

The Commonwealth Bank recently joined ANZ and Westpac in bringing forward its rate hike forecast. It now expects the RBA will lift rates by 0.15% in November 2022 and 0.25% in December 2022.

It has also pencilled in a further three 0.25% increases over the first three quarters of 2023, which would leave the cash rate sitting at 1.25% in just two years’ time.

Recent movements in the home loan space suggest the major banks aren’t the only ones beginning to doubt the RBA’s guidance, with several lenders raising long-term fixed rates or quietly removing discount offers.

Since entering a fixed rate agreement requires banks to lock in their funding costs for a set period, fixed rates tend to signal what the market thinks the interest rate landscape will look like in coming years.

Right now, cuts to short-term interest rates continue to flow through, suggesting that lenders are fairly confident there’s still some time before the RBA makes a move.

But the picture is quite different when we look at long-term rates, as the graph below shows.

Among lenders we track, the average 4-year rate currently sits at 2.49% p.a. (up from 2.37% p.a. in March 2021), while the average 5-year rate is 2.74% p.a. (up from 2.62% p.a. in March 2021).

Average fixed home loan rates

So what does this mean for mortgage holders?

According to Mozo’s banking expert Peter Marshall, banks and lenders are already behaving as if an earlier than expected rate hike is a certainty.

“If the lenders think the cash rate is going to go up they will be putting up their rates, regardless of what the RBA says about the timing of future rate increases,” he said.

So what does that mean for current mortgage holders? Assuming that the cash rate will reach 1.25% by September 2023 and lenders raise rates in line with the RBA, the average variable home loan rate could jump up from 3.27% p.a. to 4.42% p.a.

For owner occupiers paying off a $500,000 loan over 25 years, that could translate to an additional $315 in monthly repayments, or $3,780 per year.

Today’s long-term fixed rates, while no longer the cheapest of the bunch, start to look much more attractive in comparison. 

“If people consider the restrictions (early repayment fees and additional repayment limits) and they can get a rate they are comfortable with, it's a good time to look at long-term fixed rates,” said Marshall.

What’s the case against an early rate hike?

Analysts tipping a rate hike in 2022 or 2023 have touted a stronger than expected economic recovery, but there’s one area where the RBA and government have struggled to move the needle: wages growth.

In a speech delivered earlier this month, RBA governor Philip Lowe said the Wage Price Index had only increased 1.5% over the past year, with firms preferring to ‘wait and ration’ rather than offer higher wages.

“There is understandably a laser-like focus on costs: if profits can't be increased by expanding or by raising prices, then it has to be achieved by lowering costs,” he said.

“This has become the predominant mindset of many businesses. This mindset can be helpful in making businesses more efficient, but it also has the effect of making wages and prices less responsive to economic conditions.”

But the major banks aren’t convinced this is the problem the RBA makes it out to be. 

The latest NAB Business survey shows labour costs rising, and CommBank economists expect wages growth to accelerate to 2.4% per year by the end of 2021 and 2.9% per year by the end of 2022.

This along with the strength of the recovery in other areas could be enough to force the RBA’s hand. 

For more information about interest rates, visit our home loan statistics page. And if you’re in the market for a home loan, browse our home loans comparison page, where you’ll be able to filter your search by rate and type.

Home loan comparisons on Mozo

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Last updated 22 July 2024 Important disclosures and comparison rate warning*
  • Optimum Fixed Rate Home Loan

    • Owner Occupier
    • Principal & Interest
    Interest rate
    5.69 % p.a.
    Fixed 3 years
    Comparison rate
    6.34 % p.a.
    Initial monthly repayment
    $2,899
    Go to site

    Lock in a competitive interest rate and enjoy peace of mind for the fixed period. Available for owner occupied new and refinanced home loans with at least 20% deposit. Split option available as well as offset and redraw. Noapplication, ongoing or banking fees. Third Party fees may be applicable - payable within loan repayments. Extra repayments up to $20K per annum permitted. Apply online, 100% member owned credit union.

  • Flex Home Loan

    • Fixed
    • Owner Occupier
    • Principal & Interest
    • LVR <60%
    Interest rate
    5.99 % p.a.
    Fixed 3 years
    Comparison rate
    6.34 % p.a.
    Initial monthly repayment
    $2,995
    Go to site

    Competitive Fixed rate. Multiple offset accounts available. Borrowers can also make extra repayments. Redraw facility available. Simple online application process. 40% 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.

  • 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 $10,000,000.

  • 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
    6.54 % p.a.
    Fixed 2 years
    Comparison rate
    7.10 % p.a.
    Initial monthly repayment
    $3,174

    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.

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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.

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