What will home loan interest rates do in 2024?

Key Points

• Interest rates probably won’t go much higher in 2024.
• This year, we might see the first RBA rate cut since 2020.
• Fixed rate home loans will start dropping first.

The last two years have been chaotic ones for home loan interest rates. Between May 2022 and November 2023, the official cash rate jumped a staggering 4.25%, bringing average home loan rates up by almost the same amount in the Mozo database.

This has added thousands to mortgage repayments for average Australian homeowners. But is 2024 going to be more of the same? Or could the tide finally turn?

Let’s look ahead. Here’s what home loan interest rates will (probably) do in 2024.

In all likelihood, we’ll reach the cash rate peak in 2024. According to Big Bank rate forecasts, the Reserve Bank of Australia (RBA) only has one more rate rise left in its tank – if it even moves at all. 

This means the official cash rate could peak at 4.35% or 4.60% this year. 

During the interest rate hold of 2023, home loan lenders made tiny individual adjustments to their mortgage rates. On average, however, variable rates stayed the same for several months in a row. 

If the RBA indicates it’s done tightening monetary policy, home loan rates will likely hover about where they are. Currently, this is an average variable rate of 6.85% in the Mozo database (OO, P&I, LVR < 80%).

This could be great news for home buyers. You most likely have time to truly research the market and compare home loans without worrying about deals changing as you apply. This could give you greater certainty when buying property.

Thankfully, inflation has begun to slow down. This is good news for homeowners and home buyers since runaway inflation was the main cause behind higher interest rates. If inflation keeps falling, the RBA will eventually lower interest rates to something less extreme.

When will interest rates come down? The timing is a little iffy. But unless inflation does something strange or the economy goes into recession, the Big Banks reckon we could see the first cash rate cut as early as September 2024. By Christmas, at the latest.

RBA cash rate cut forecasts from Westpac and NAB (January 2024)

Fixed interest rate home loans are predictive. Lenders set their fixed rates based on what they think the economy will look like during the fixed term. 

If lenders start cutting fixed rates on longer terms (3-5 years), it means rates will probably come down during that time. If they start cutting on shorter terms (1-2), it means an official rate cut is imminent. 

We can expect fixed rates to drop as the RBA gets closer to unwinding monetary policy this year. Which terms drop first will tell us when banks think the first drop will happen.

Fixed rate home loans have been more or less out of the market since the RBA began raising interest rates two years ago, though there are still some good individual deals to compare. 

It’s mostly a question of trade-offs: if you fix your interest rate, it shields you from rate hikes but locks you out of rate cuts. Fixed rates are usually less flexible with their features, too, so comparing your options is always wise.  

Timing is also important. Jumping on a fixed rate deal just when the RBA begins lowering the cash rate can be poor timing since fixed rates will still have further to fall. 

Instead, consider fixing at the low of a cycle when the RBA has put the cash rate into “neutral territory”, likely around 3%. The Big Banks estimate this could happen roughly in mid-2025.

In the meantime, comparing home loans is still your best bet for finding something that could work for you. 

Compare home loans in the table below.