RBA hold confuses the home loan decision: Should you go fixed, variable or split?
With the Reserve Bank holding interest rates at 4.35% this March, how should home buyers now consider their home loan interest rate?
It can be tricky. The average variable home loan rate is currently 6.82% p.a., as per the Mozo database, but it seems likely to drop in the not too distant future. Though no one is certain when.
At a glance, variable home loan rates seem a bit high right now. Consider some of the options from major banks, such as CommBank’s Extra Home Loan at 6.79% p.a. (7.06% p.a. comparison rate), NAB’s Base Variable Rate Home Loan at 6.84% p.a. (6.88% p.a. comparison rate), ANZ’s Simplicity Plus Special at 6.64% p.a. (6.64% p.a. comparison rate) and Westpac’s Flexi First Option Home Loan Special at 6.54% p.a. (6.86% p.a. comparison rate).
There’s not a lot of variability here, so to speak.
However, our recent Mozo Home Loan Report showed that smaller banks can save borrowers money with some much more attractive variable rates: G&C Mutual’s Essential Worker Home Loan offers 5.80% p.a. (5.83% comparison rate), Homeloans360’s Owner Variable Home Loan is at 5.89% p.a. (5.89% p.a. comparison rate) and Community First Bank’s Basic Variable Home Loan at 5.94% p.a. (5.99% p.a. comparison rate), for example.
Again, it’s hard to know if these rates will move. Could it be a better bet to fix for a short while?
The question of fixing: Fixed home loans in focus
There have been some good looking deals in fixed home loans of late. Though it’s hard to know if fixing for two or three years is worth the gamble.
Still, for argument’s sake, let’s consider a few of the better moves in early 2024. Take AMP Bank, which recently reduced rates for all of its fixed term home loans by up to 50 basis points, with its 3-year rate now coming in at 5.99% p.a. (6.68% p.a. comparison rate). Some competitors are offering even better on 3-year terms: for example, Bank Australia’s Clean Energy Option is now at 5.79% p.a. for 3 years (6.43% p.a. comparison rate), while Well Money has dropped its 3-year fixed rate to 5.89% p.a. (comparison rate 6.49% p.a.).
Both ING and Qantas Money also got in on the act recently, coming down on 3 years fixed to 6.12% p.a. (both comparison rates). Further still, one of the more impressive options right now is from Australian Mutual Bank which has a 5.48% p.a. fixed rate for 3 years (6.24% p.a. comparison rate. This is the leading 3-year fixed rate in the Mozo database and is among the best fixed rates all up.
But Mozo’s Home Loan Expert, Peter Marshall says there is a risk with fixing rate right now because if the RBA has it wrong and needs to cut hard later this year, these fixed options could leave homeowners paying much more than needed and for quite a while.
“We've seen the RBA send a wrong message about the future of interest rates before, so we should not rule it out from happening again,” Marshall says.
“Banks are also very good at setting rates so that they do not lose. This means that those who have rates at 5.69% now believe that within three years rates will be lower than that - and possibly much lower. Never bet against the banks!”
Better to consider a split rate loan?
Notably, Mozo’s Home Loan Report found that 7% of borrowers don’t know their home loan type, despite it having a big impact on repayments.
And yet, knowing how a loan works and getting a good interest rate only takes a bit of research. It also allows you to explore a few options, including the often forgotten 'split rate' home loan. When you have a split loan, one portion is charged interest at a variable rate, while the other portion is charged interest at a fixed rate.
So put simply, split rate home loans can be quite handy when borrowers face a tricky economy and uncertainty around interest rate movements. In a way, they offer borrowers a sense of stability and balance. They also give them the assurance of fixed rates while benefiting from potential variable rate cuts.
Marshall says split loans can certainly be a safer option, where you get the risks and benefits from both rate types.
“My personal view is that rates will fall harder and faster than almost anyone is talking about right now,” Marshall says.
If that’s the case, a split home loan might be the best way to play this currently unpredictable home loan landscape.
If you're in the market for a home loan, let us help you do the heavy lifting. Our home loan experts handpick some of the best home loans on the market in an effort to make comparing interest rates and features easier. Start comparing below!
Compare top home loans - last updated 27 April 2024
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Featured Product
Mozo experts choice awards won:
- Low Cost Home Loan - 2024
Unloan Variable
Owner Occupier, LVR <80%
interest rate
comparison rate
Initial monthly repayment5.99% p.a. variable5.90% p.a.Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.
CompareCompareUnloan Variable
Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.
- interest rate
- 5.99% p.a. variable
- comparison rate
- 5.90% p.a.
- interest rate
- 5.99% p.a. variable
- comparison rate
- 5.90% p.a.
- Upfront fees
- $0
- Ongoing fees
- $0.00
- Discharge Fee
- $0.00
- Extra repayments
- yes - free
- Redraw facility
- yes - free
- Offset account
- no
- Maximum loan to value ratio
- 80.00%
- minimum borrowing amount
- $10,000
- maximum borrowing amount
- $10,000,000
- type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the Unloan Unloan Variable
-
Mozo experts choice awards won:
- Exceptional Value Home Lender - 2024
Express Home Loan
Owner Occupier, Principal & Interest, LVR <90%
interest rate
comparison rate
Initial monthly repayment6.01% p.a. variable6.14% p.a.Get fast online approval from the award-winning Bendigo Bank Express Home Loan. Multiple offset accounts and redraw available. 100% offset on variable rate loans and partial offset on fixed rate. Flexible repayment options. New home loans only.
CompareCompareExpress Home Loan
Get fast online approval from the award-winning Bendigo Bank Express Home Loan. Multiple offset accounts and redraw available. 100% offset on variable rate loans and partial offset on fixed rate. Flexible repayment options. New home loans only.
- interest rate
- 6.01% p.a. variable
- comparison rate
- 6.14% p.a.
- interest rate
- 6.01% p.a. variable
- comparison rate
- 6.14% p.a.
- Upfront fees
- $134
- Ongoing fees
- $10.00 monthly
- Discharge Fee
- $350.00
- Extra repayments
- yes - free
- Redraw facility
- yes - free
- Offset account
- yes
- Maximum loan to value ratio
- 90.00%
- minimum borrowing amount
- $5,000
- maximum borrowing amount
- $3,000,000
- type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the Bendigo Bank Express Home Loan
-
Discounted Home Value Loan
Owner Occupier, Principal & Interest, LVR 70-80%
interest rate
comparison rate
Initial monthly repayment6.09% p.a. variable6.09% p.a.Enjoy competitive rates for owner occupiers. Enjoy unlimited free extra repayments. Flexibility to redraw additional payments for free. No ongoing monthly service fee. Settlement fee waived on new borrowings from $50,000 (T&Cs apply).
CompareCompareDiscounted Home Value Loan
Enjoy competitive rates for owner occupiers. Enjoy unlimited free extra repayments. Flexibility to redraw additional payments for free. No ongoing monthly service fee. Settlement fee waived on new borrowings from $50,000 (T&Cs apply).
- interest rate
- 6.09% p.a. variable
- comparison rate
- 6.09% p.a.
- interest rate
- 6.09% p.a. variable
- comparison rate
- 6.09% p.a.
- Upfront fees
- $0
- Ongoing fees
- $0.00
- Discharge Fee
- $300.00
- Extra repayments
- yes - free
- Redraw facility
- yes - free
- Offset account
- no
- Maximum loan to value ratio
- 80.00%
- minimum borrowing amount
- $50,000
- maximum borrowing amount
- $15,000,000
- type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the HSBC Discounted Home Value Loan
-
Featured Product
Mozo experts choice awards won:
- Low Cost Home Loan - 2024
Unloan Variable
Investment, LVR <80%
interest rate
comparison rate
Initial monthly repayment6.29% p.a. variable6.20% p.a.Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for investors. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.
CompareCompareUnloan Variable
Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for investors. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.
- interest rate
- 6.29% p.a. variable
- comparison rate
- 6.20% p.a.
- interest rate
- 6.29% p.a. variable
- comparison rate
- 6.20% p.a.
- Upfront fees
- $0
- Ongoing fees
- $0.00
- Discharge Fee
- $0.00
- Extra repayments
- yes - free
- Redraw facility
- yes - free
- Offset account
- no
- Maximum loan to value ratio
- 80.00%
- minimum borrowing amount
- $10,000
- maximum borrowing amount
- $10,000,000
- type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Investor
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the Unloan Unloan Variable
-
Basic Home Loan
Fixed, Owner Occupier, Principal & Interest, LVR<70%
interest rate
comparison rate
Initial monthly repayment5.99% p.a.
fixed 3 years6.12% 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.
CompareCompareBasic Home Loan
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.
- interest rate
- 5.99% p.a.
fixed 3 years
- comparison rate
- 6.12% p.a.
- interest rate
- 5.99% p.a.
fixed 3 years
- comparison rate
- 6.12% p.a.
- Upfront fees
- $350
- Ongoing fees
- $0.00
- Discharge Fee
- $400.00
- Extra repayments
- yes - up to $10,000 p.a.
- Redraw facility
- yes - free
- Offset account
- no
- Maximum loan to value ratio
- 70.00%
- minimum borrowing amount
- $150,000
- maximum borrowing amount
- $10,000,000
- type of mortgage
- Fixed
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the Macquarie Basic Home Loan
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