Why securing a low-rate home loan now is a good idea
With interest rates stabilising after a series of hikes, it’s crucial to consider strategies that can improve your financial position and help you manage your home loan costs effectively. One such strategy is refinancing to a lower variable-rate home loan.
Despite the current cash rate of 4.35%, many lenders are offering competitive variable rates, with some as low as 5.69% for owner-occupiers. This presents an opportunity to secure a better deal and potentially save thousands over the life of your loan.
This strategy is particularly suitable if you:
- Have an owner-occupied home loan AND
- Are currently on a variable rate OR are exiting a fixed-rate term within the next 4-6 weeks
- Possess more than 20% equity in your property
Key benefit:
By securing the best variable home loan you can now, you’re better positioned to absorb potential rate fluctuations in the future. With experts predicting rate cuts starting from February to May 2025, locking in a competitive variable rate today could provide significant savings in the coming months.
Consider these additional points:
- Compare offers from multiple lenders, including non-bank lenders who often provide very competitive rates.
- Look beyond just the interest rate and consider features like offset accounts or redraw facilities that can help you save more in the long run.
- Be aware of any switching costs or break fees, especially if you’re exiting a fixed-rate loan early.
- Consider the loan’s comparison rate, which includes most fees and charges, for a more accurate cost comparison.
Remember, while rate cuts are predicted for 2025, the timing and extent remain uncertain. Securing a competitive rate now could provide both immediate savings and long-term benefits as we navigate through this evolving economic landscape.
It’s also worth exploring other strategies to reduce your mortgage repayments, such as debt consolidation or switching investment property loans to interest-only repayments. However, always consult with a financial advisor to ensure these strategies align with your overall financial goals and circumstances.
So, let’s get into it.
Should I switch to get a better variable rate home loan?
One of the most effective ways to reduce your monthly home loan repayment is to secure a lower interest rate on your mortgage. Despite the challenging interest rate environment, there are still opportunities to find competitive deals, particularly in the variable-rate home loan market.
As of February 2025, we’re seeing some lenders offer attractive variable rates, often lower than their fixed-rate counterparts. This might seem counterintuitive given the recent series of rate hikes, but it reflects the market’s anticipation of potential rate cuts later in the year.
For instance, while the average variable rate for owner-occupiers is around 6.24%, some lenders are offering rates as low as 5.69% for well-qualified borrowers. This presents a significant opportunity for savings compared to the current average 3-year fixed rate of about 5.84%.
Here’s a snapshot of current variable home loan rates from the big 4 (as of February 2025):
These rates are for owner-occupier loans with an LVR ≤80% and may vary based on specific loan products and conditions. Always check with the lender for the most up-to-date and accurate rates.
The current market conditions present an opportunity to lock in a competitive variable rate, potentially saving thousands over the life of your loan. However, it’s crucial to consider your individual circumstances and consult with a financial advisor before making any decisions.
Now could be a very good time to refinance to a lower variable rate.
When interest rates were at record lows several years ago, I sent out some commentary on a few occasions advising you against refinancing in general.
This is mainly because I wasn’t seeing competitive deals from the banks on variable home loans.
At the time, the banks were offering good fixed rates instead (and my advice is always to avoid fixing 100% of your loan).
Now could be a strategic time to consider refinancing to a lower variable rate home loan, as the current market offers some competitive options. Here’s my updated perspective.
As of February 2025, the Reserve Bank of Australia (RBA) cash rate stands at 4.35%. Despite this relatively high rate, many lenders are offering competitive variable rates, anticipating potential rate cuts later in the year.
According to Money.com.au, the average variable home loan rate for new loans is currently 6.24% p.a.³. However, some lenders are offering rates as low as 5.69% p.a. (comparison rate 6.06%) for well-qualified borrowers.
Major banks are also providing attractive variable rates. For instance, NAB’s Base Variable Rate Home Loan for owner-occupiers with principal and interest repayments is currently at 6.44% p.a. (comparison rate 6.48% p.a.).
Experts are predicting interest rate cuts in the near future. Two of the big four banks (ANZ and CBA) forecast the first rate cut in February 2025, while NAB and Westpac predict cuts starting in May 2025. This anticipation of rate cuts is likely driving the competitive variable rate offerings we’re seeing.
If you’re currently on a variable-rate home loan or your fixed-rate period is ending soon, now might be an opportune time to explore refinancing options. However, it’s crucial to consider your individual circumstances and consult with a financial advisor before making any decisions.
Remember, while lower rates are attractive, it’s also important to consider other factors such as fees, loan features, and your long-term financial goals when choosing a home loan.
You can hear more about why I recommend switching to a variable rate home home on you tube.
Watch on YouTube as I explain why now is a good time to switch to a variable rate home loan.
You may get an even lower rate if you have equity in your home?
You will get a better rate if you have got at least 30% equity in your home.
A lot of people who have owned for 12 to 18 months are now in that position because of how the markets moved.
Some banks will offer you an extra 0.1% off your rate with 30% equity as opposed to 20% equity in your home.
What is the benefit staying on a variable rate home loan?
The main concern my clients have with variable loans tends to surface when interest rates are expected to rise.
However the lower the rate that you’re on currently, the less that rise will impact you.
Let me give you an example.
Say you’re on 3% currently.
If rates rise by 1%, then your rate obviously goes up to 4%.
But if you refinance right now, you may be able to get your current rate lowered to say 2%.
Then an interest rate rise of 1% will take you back to closer to where you are at 3%.
The point is, that by snapping up a lower rate right now, you are creating a buffer, so your monthly income / expenses can handle the interest rate rises without you needing to cut back on other expenses.
Getting prepared for future interest rate increases by switching to a lower variable rate right now means that over the next 6 to 12 months, if rates fluctuate, it will not cost you as much as it could otherwise and if there’s a bigger than expected drop, you’ll reap the rewards.
It’s about using the competition in the market between banks, to get yourself a better deal right now.
What are the downsides of variable rate home loans?
Being on a variable rate home loan means your monthly loan repayments will rise as the RBA continues to increase rates.
Some clients do find this uncertainty difficult to handle, but given that rates are appearing to stabilise, its not a huge worry right now.
However, keep in mind that you don’t necessarily want to fix your loan, because the interest rates to fix are a lot higher than what you can get right now on a variable rate home loan.
If you do still want to fix your home loan, I recommend doing what we call a split loan.
This is where a portion of your home loan is fixed and a portion is variable.
For example, you may fix 40% of your loan and have 60% on a variable rate.
I highly recommend you book a free call with me here to discuss the best option for you.
Further reading
Want to understand more about what’s involved in refinancing? See our complete guide to refinancing here.
My name is Victor Kalinowski and I’m a mortgage broker in Brisbane at Blackk Mortgage Brokers, with offices based in West End (Brisbane) and Burleigh Heads (Gold Coast). If you’re interested in getting in touch for some advice, book a call on 07 3122 3628 and we can talk through how to get the best rates for your fixed or variable home loan.
The information contained within this page is general in nature. It serves as a guide only and does not take into account your personal financial needs. Before you act on this information you should seek independent legal and financial advice. Copyright Blackk Mortgage Brokers 2023.
