Mozo guides

It just got harder to service a home loan: Here’s what you can do

Aerial view of suburban houses

After this week’s Reserve Bank of Australia (RBA) decision to raise the cash rate to 0.35% (an increase of 0.25%), owning a home or applying for a new home loan just got more expensive. 

The interest rate rise earlier this week may only be the beginning, with anticipations of a further rate rise to come in June, according to Mozo’s banking expert Peter Marshall. 

“The RBA is keen to get a bit of normalisation into the system, and a small increase this week followed by another 25 basis point increase in June will be less alarming to people than a one-off 40 basis point hike,” said Marshall.

With some banks already publicising their decision to pass on the rates to customers in the coming weeks, including the Big Four banks, it could get even more expensive to own or finance a new home as the year progresses. 

So, what can you do to safeguard your money against further mortgage repayment increases?

Calculate your home loan repayments

For those with an existing home loan, Mozo’s home loan rate change calculator can help you quickly and easily crunch the numbers on how much your mortgage repayments will change with the interest rate rise. 

If you’re finding it’s becoming increasingly difficult to make mortgage repayments, then it may be time to consider refinancing your loan, or even comparing new home loan options with more desirable rates.

Fixed interest loans

By fixing your loan’s interest rate, you are locking in a certain rate for a specific period of time. Fixing your interest rate helps keep your repayments consistent, which is great for first home buyers and those with strict budgets. 

So you might consider fixing your home loan at a time like now, amid the RBA’s cash rate increases in order to lock in a lower interest rate. However, you need to consider the advantages and disadvantages of a fixed interest loan, and that the variable rate you revert to after the term is over may be higher.

Variable vs fixed interest loans

Variable rates are determined by your lender and often shift with the RBA cash rate, which is what we’re seeing now. When rates are low, you’ll benefit from cheaper repayments, but as soon as they rise your repayments will likely rise too.

Fixed rates, as previously mentioned, lock in a rate over a period of time, which could be good when rates are rising. However, you lose the flexibility of a variable rate, not only in terms of falling interest rates but also with important factors like being able to switch home loans easily or having a 100% offset account. Also the fact that many fixed loans charge an early exit fee. Fixed rates are often higher than variable rates too.

Fixing a portion of your loan

The latest Mozo research found that only 12% of borrowers had fixed their home loan, while a larger number (20%) had fixed some portion of their loan. 

Fixing a portion of your home loan, also known as splitting, divides your loan into two separate accounts. One account will be charged at a variable rate, and the other at a fixed rate. Once the fixed period of interest ends, you’ll be reverted back to a variable rate. 

If you’re considering this option as a way to combat the effects of the interest rate rise, then read more about splitting your home loan to see if it’s the right financial decision for you.

Offset accounts

Offset accounts help reduce the amount of interest you pay on a loan by keeping your everyday money in a bank account with your lender. 

Offset accounts are just like an everyday bank account, except that it will be linked with your home loan. 

And you can treat your offset account just like a bank account by having your salary deposited into it, setting up direct debits for bills, and even making everyday purchases with a debit card your lender supplies.  

You can opt for a 100% offset, partial offset, or discounted rate accounts.

One caveat of an offset account is that you will likely pay a monthly fee, as well as a higher interest rate.

How 100% offset accounts work for home loans

The balance you hold in your offset account is deducted from your remaining home loan principal, which ultimately brings down the amount of interest you repay on your loan. 

For example, if a homeowner has a $500,000 home loan and $50,000 in a 100% offset account they will only be charged interest on $450,000.

What is a partial offset account? 

There are two types of partial offset accounts:

  • Portion of your balance. Your provider may offset a percentage of the balance in your offset account to reduce the principal of your loan and the interest you pay. For example, if Lisa signs up with a loan with a 40% partial offset facility, $20,000 of her $50,000 balance will go towards bringing down the principal. So on a $500,000 home loan, she would only pay interest on $480,000.
  • Discounted rate. Another type of partial offset you may be offered is a discounted interest rate on the balance in your offset account. For instance, a home loan with a 5% interest rate that offers a 1.5% discount will mean you will only be charged 3.5% on the balance in the offset account.

Switching to a cheaper interest rate

If your monthly repayments are looking to skyrocket, and fixing your interest rate or opting for an offset account, you might need to consider switching to a cheaper interest rate. 

Compare interest rates with Mozo to search for a cheaper rate today!

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 24 June 2024 Important disclosures and comparison rate warning*
  • Offset Home Loan

    Package, Owner Occupier, LVR<60%, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    6.14% p.a. variable
    6.39% p.a.

    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.

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  • Fixed Rate

    Owner Occupier, Principal & Interest, <80% LVR

    interest rate
    comparison rate
    Initial monthly repayment
    6.54% p.a.
    fixed 2 years
    7.10% p.a.

    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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  • Basic Home Loan

    Owner Occupier, LVR<60%, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    6.14% p.a. variable
    6.16% p.a.

    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.

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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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  • Fixed Rate Loan with Orange Advantage

    Orange Advantage, Owner Occupiers, Principal & Interest, LVR <80%

    interest rate
    comparison rate
    Initial monthly repayment
    6.09% p.a.
    fixed 2 years
    6.16% p.a.

    Know exactly what your repayments will be, and you can fix your rate for up to 5 years. No monthly, annual fee or transaction fees. Free additional repayments (less than $10,000 p.a.). Valid for loans of $50,000 up to $2,000,000.

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    Details
  • Elevate

    Owner Occupier, Principal & Interest, <80% LVR

    interest rate
    comparison rate
    Initial monthly repayment
    6.09% p.a. variable
    6.20% p.a.

    Get competitive rates on loan terms of 5 to 30 years with the Aussie Elevate Home Loan. Structure your loan with up to five splits. Make additional repayments (T&Cs apply). Offset accounts available. Unlimited redraw using your online banking account. Choose from weekly, fortnightly or monthly payments For loan amounts from $10,000 to $5 million.

    Compare
    Details
  • Mortgage Simplifier

    LVR<80%, Owner Occupier, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    6.14% p.a. variable
    6.17% p.a.

    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.

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    Details
  • 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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  • 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
Jack Dona
Jack Dona
RG146
Money writer

Jack is RG146 Generic Knowledge certified, with a Bachelor of Communications in Creative Writing from UTS, and uses his creative flair to cut through the financial jargon and make home loans, insurance and banking interesting. His reader-first approach to creating content and his passion for financial literacy means he always looks for innovative ways to explain personal finance. Jack's research and explanations have been featured in government publications, and his work is regularly featured alongside major publications in Google's Top Stories for Insurance.