Average Home Loan Interest Rates in 2024

Understanding home loan interest rates is important for anyone looking to buy a home, refinance an existing mortgage, or simply stay informed about the housing market and other financial matters.

Gaining a comprehensive overview of the average home loan interest rate in Australia, comparing various mortgage statistics such as the average home loan rate, average loan sizes, and refinancing trends, is beneficial for learning about the economy and improving your financial literacy in general.

What is the average home loan interest rate?

As at the end of February 2024, the average variable home loan interest rate for an owner-occupier mortgage (for new home loans) was 6.27% p.a. 

This rate followed the Reserve Bank of Australia (RBA)'s decision to keep the cash rate unchanged at 4.35% since its last increase in November 2023. Fixed-rate loans are often converging with, or even cheaper than variable-rate loans, at the moment which is unusual.

Why does this matter?

For a start, homeowners now have more choices. Not everyone wants a fixed interest rate loan, but having options is beneficial. 

Falling fixed rates might indicate that cheaper mortgages and potential future interest rate cuts by the RBA are on the way. However, there's no certainty that the RBA will lower the cash rate soon so fixing your home loan for a year or two isn’t likely to see you missing out on any massive rate cuts.

Are fixed interest rates better than variable interest rates?

That depends on whether you value certainty in your household budget more than the possibility of making a lower repayment, should your variable interest rate be cut.

Fixed rates provide budgeting stability since mortgage holders know that their repayments won’t change during the fixed period. However, if interest rates do drop, fixed-rate holders won’t benefit from lower repayments. During a time of high prices and higher living costs, knowing what your mortgage repayments will be every month is worth a lot to many Australian homeowners.

Fixed rates below variable rates are uncommon, so consider locking in a better rate quickly. Alternatively, you can split your loan between fixed and variable rates. This is called a hybrid loan.

Why does the RBA’s cash rate decision matter so much?

The RBA's cash rate target serves as the baseline risk-free interest rate for banks. Here's a comparison of the RBA cash rate with banks' standard variable rates (SVR):

• 2019-2022: The RBA lowered the cash rate to record lows, leading to significant decreases in Standard Variable Rates (SVRs), though not as rapidly.

• Post-2022: The gap between the cash rate and SVRs widened, reflecting slower reductions in bank’s interest rates.

During the Covid-19 pandemic, the RBA lowered the cash rate to just 0.1%. Mortgage lenders dropped retail home loan rates to record lows, with rates under 2% being quite common.

Since the end of the pandemic, interest rates have been rising steadily - and until quite recently, they were rising quickly too. Initially, fixed-rate loans saw sharper increases compared to variable loans, but this trend has recently reversed.

One of the reasons why this matters so much to homeowners with a mortgage - or first time house hunters hoping to become homeowners, is because house prices keep rising, so home loan sizes are getting larger. When you have a very big debt to repay, the slightest change in interest rates can mean thousands of dollars more you’ll have to pay (if the rate moves upward), or you can save (if the rate moves downward).

Record-low interest rates during the COVID-19 pandemic enabled borrowers to secure larger loans, boosting their purchasing power and driving up dwelling prices.

Average size of new home loans in 2024:

Source: Infochoice (February 2024)

The figures above represent new loans but there was also a surge in refinancing as existing homeowners sought better home loan deals during the pandemic.. The average loan amounts are generally lower for refinancers:

Average size of refinanced home loans in 2024:

Source: Infochoice (February 2024)

As interest rates began to rise after the pandemic, refinancing hit new highs. In late 2023, this dropped off, suggesting many borrowers were struggling to have their loans approved, and/or find better deals. In some regions, home values fell, leaving mortgage holders with homes that were valued below the debt held against their property - in what came to be known as "mortgage prison."

What’s the average home loan interest rate?

Source: Infochoice (May 2024)

Note that rates in the above table are based on a $400,000, owner-occupier home loan, paying principal and interest, with a loan-to-value ratio (LVR) of less than 80%.

What is the impact of the higher interest rates?

As you can see from the table above, the RBA's recent interest rate hikes, aimed at controlling inflation, have significantly increased home loan interest rates. For instance:

• April 2022: The cash rate was 0.10%, and the average variable home loan interest rate was 3.03% p.a.

• May 2024: The cash rate was 4.35%, and the average variable rate has more than doubled to 6.80% p.a.

What does the increase in home loan interest rates mean for borrowers now?

The rapid rise in home loan interest rates has significantly increased monthly repayments for borrowers, often by thousands of dollars.

Keeping track of interest rate trends is essential for homeowners and potential homeowners. Whether you’re buying a first home, investing in property, or refinancing your holiday home, staying informed about how the RBA’s decisions influence home loan rates and mortgage repayments can help you in your financial decision making.

Sources:

https://www.investopedia.com/terms/n/networth.asp

https://moneysmart.gov.au/managing-debt/net-worth-calculator

https://compareclub.com.au/expert-analysis/loans-and-credit/what-does-a-lender-look-at-in-a-basic-home-loan-application

https://www.afca.org.au/ 

https://www.rba.gov.au/statistics/interest-rates/

https://www.apra.gov.au/housing-lending-standards-reinforcing-guidance-on-exceptions

https://www.investopedia.com/terms/m/mortgage-rate.asp

Anthony Stevenson, is the head of home loans at Compare Club. With over a decade of experience under his belt, Anthony is dedicated to helping individuals make informed decisions when choosing a home loan. Whether it's finding a great deal on your home loan or refinancing, Anthony has a wealth of knowledge in the space.

Meet our home loans expert, Anthony Stevenson

Anthony's top home loans tips

• 1

  Refinancing is the smartest, fastest way to lower your repayments and give yourself some breathing room.

• 2

  There’s more to a good value home loan than just interest rates. Are you paying high account keeping fees, or being charged for making extra repayments?

• 3

  Pre-approval and unconditional approval of your home loan are different parts of the same process. Our expert brokers cut through the jargon for you.

• 4

  Home loan pre-approval is not compulsory. It’s possible to begin your home loan application after you’ve found the home you want to buy.