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March Home Loan Market Update
Thanks to last month's RBA rate cut, home loan interest rates are now the lowest they've been in more than a year. With most lenders (i.e. pretty much everyone except Virgin Money) behaving themselves and passing on the 0.25% cash rate cut in full to new and existing borrowers, the average variable home loan rate on the market for owner occupiers is now around 6.00% p.a. It hasn't been that low since - you guessed it - before the last cash rate rise in November 2023.
That suggests now could well be the best time to take out a home loan in nearly a year and a half. And conditions might improve further still, with most economists tipping at least one more cash rate cut to come this year, while economists at CommBank reckon there'll be three more.
With more rate cuts expected, many fixed rates - which tend to 'price in' these future movements - are currently lower than most variable rates. Some lenders are even offering loans at fixed rates under 5.50% p.a. These might look like a great deal now, but perhaps not in the near future should the RBA go on a chopping spree.
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Home Loan Interest Rates in Australia
Like many other developed countries, interest rates in Australia are much higher now than they were during the pandemic, when many lenders were offering home loans for under 2.00% p.a.
Interest rates on home loans have generally followed the trajectory of the cash rate, which is set by the Reserve Bank of Australia (RBA). As the cash rate is increased, rates on loan products typically also increase, and the same relationship applies when the RBA cut rates. From April 2022 to November 2023, the cash rate went from 0.10% to 4.35%, which is the main reason why home loan rates went up so much. Forecasts on the future direction of the cash rate are mixed, with the RBA decisions largely dependent on economic factors such as inflation and unemployment.
Rate increases are not good news for borrowers, but good news for debt-free savers - vice versa for rate decreases.
Lenders tend not to waste any time in passing on the RBA's cash rate rises to mortgage rates, but some are offering much lower rates than others so there are still savings to be had.