Borrowers fear rising rates: RBA cash rate hike speculation continues

• Of the 80% of borrowers who are fearful of rising rates, worryingly 7% believe they will have to sell their property when interest rates rise
• The latest ABS figures show the average new mortgage amount has increased 20% from $462,172 to $553,460 since December 2019 
• If the cash rate went back to its February 2019 level of 1.5%, annual repayments on an average $400,000 mortgage could increase by $3,660  
• Mozo’s research found 76% of borrowers haven’t switched lenders in the past 12 months and around a quarter (26%) were unaware they might be able to get a better interest rate through smaller lenders 
• Tic:Toc awarded Mozo Expert Choice Award - Online Home Lender of the Year in 2022 with its 1.89% interest rate 157 basis points below the average Big 4 bank rate of 3.46%. On average borrowers could save $3,840 a year by switching from the average Big 4 bank rate to Tic:Toc’s rate of 1.89%

The latest research from Mozo has found a staggering 80% of borrowers are fearful of rising interest rates as speculation continues around when the RBA will hike the cash rate. 

Of the borrowers who are fearful of rising rates, worryingly 7% believe they will have to sell their property when rates rise. The finding comes after Treasury secretary Steven Kennedy told a senate hearing this week that interest rates will have to go up and it’s in the country’s long-term interest for rates to start “normalising’. 

While speculation continues around when the RBA and the banks will raise variable interest rates this year, the latest figures from the ABS show the average new mortgage amount has increased 20% from $462,172 to $553,460 over the two years to December. 

“With many Australians sitting on massive mortgages, it’s little wonder some borrowers are very worried about rising interest rates,” says Mozo spokesperson Tom Godfrey. 

Mozo’s analysis shows if the cash rate went back to its level two years ago of 1.5% and lenders passed the increases in full, the annual repayments on an average $400,000 mortgage would increase by $3,660.  

“If you have a sizable mortgage, now is the time to act. It’s worth stress testing your ability to make higher monthly repayments and critically compare interest rates and seek out the best value loan you can find.”

Mozo’s research also found three quarters (76%) of borrowers haven’t switched lenders in the last 12 month and a quarter (26%) of borrowers were unaware they might be able to get a better interest rate through smaller lenders. This is despite the fact that the comparison site’s database shows online lenders such as Tic:Toc offering some of the most competitive variable rates. 

Tic:Toc’s 1.89% variable loan is 157 basis points below the average of the big four banks (3.46%). On an average $400,000 mortgage, switching from the average Big 4 rate to Tic:Toc’s lower rate could shave $3,840 a year off your mortgage and $95,954 over the life of your loan. 

Mozo found over half (55%) of borrowers would consider an online lender instead of a big bank, with 47% attracted by cheap rates and lower fees. 29% also saw the easy application process as the main benefit, while a quarter liked the faster approval process. 

When it came to the reasons why some borrowers failed to bank lower rates through an online lender, Mozo found not knowing enough about them (30%), remaining loyal to their bank (22%) and using a mortgage broker (22%) were the main reasons people resisted saving thousands off their mortgage. 

The findings come as Mozo’s annual review of 441 home loans recognised Tic:Toc with the Mozo Experts Choice Award - Online Home Lender of the Year in 2022 and Nano the Best New Home Loan. 

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Notes: Mozo’s nationally representative survey was conducted by Researchify in February 2022, 1,588 participants were asked about their home loans. Where percentages are over 100% respondents selected more than one answer to the question. 

Mozo’s analysis found switching to Tic:Toc’s 1.89% rate from the average Big 4 bank interest rate of 3.46% could save you $3,840 a year. The savings is based on information in the Mozo database for a $400,000 loan with an 80% LVR for an owner occupier paying principal & interest as at 8 February 2022. 

Taking average variable rate 3.08% then adding 1.4% would increase the home loan rate to 4.48% rate and add $305 extra to the monthly payments or $3,660 annually.

Mozo ExpertsChoice Awards for Home Loans analyses 441 home loans for owner occupier borrowers making principal and interest repayments looking to borrow 80% of the value of their property. Mozo keeps track of thousands of productions in banking, insurance and energy and uses our expert knowledge to identify products that offer great value or market-leading features.