What is the Average Mortgage Interest Rate in Australia?

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Home loans in Australia come in many different forms and come with many variables. One of the variables that fluctuate the most is the mortgage interest rates. The rates go up and down constantly, so for an expat, it’s worth knowing what the current rate is and what interest rate home loans are available.

Continue reading our average Australian mortgage interest rate guide to find out the current average mortgage interest rate in Australia, what interest rate home loans are available for expats, the RBA cash rate, and more!

What Are The Average Mortgage Interest Rates In Australia In 2022?

The average mortgage interest rates vary depending on the property value and type of home loan (outstanding home loans and new home loans). Here is the current interest rate number according to the Jan 2022 Reserve Bank Of Australia (RBA) report.

What is the Average Mortgage Interest Rate in Australia

Interest Rates On Outstanding Home Loans

As of January 2022, the current interest rate for outstanding home loans in Australia is 2.94%; this number is on a downhill trend. In January 2021, the interest rate was 3.13%, and in January 2020, it was 3.6%.

The drop in the interest rate between 2020 to 2021 was larger than 2021 to 2022. Therefore, if the interest rate follows the same trend in the future, the interest rate will drop by roughly 0.1% by January 2023.

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Interest Rates On New Home Loans

As of January 2022, the current interest rate for new home loans in Australia is 2.52%; this number is on a downhill trend. In January 2021, the interest rate was 2.79%, and in January 2020, it was 3.26%. 

The drop in the interest rate between 2020 to 2021 was larger than 2021 to 2022. Therefore, if the interest rate follows the same trend, the interest rate for new home loans will drop by roughly 0.15% by January 2023.

The RBA Cash Rate

The RBA cash rate is the interest rate on loans between banks (the loans are unsecured and sent overnight). Since the 4th of November 2020, the RBS cash rate target has been 0.10%. Currently, the rate is at 0.10%, so it is on target. 

The rate is wildly different from 10 years ago; it was 4.25% in March 2012. The likely trend is that the rate will stay the same or reduce by a minor number in the next few years (around 0.01%).

What Types Of Interest Rates Are There For Expats In Australia?

One of the most significant decisions an ex-pat needs to make when applying for a home loan in Australia is to decide on an interest rate.

There are multiple interest rates for home loans, including fixed, variable, and partially fixed. Here are all the available interest rates for expats in Australia and their pros and cons.

Fixed Interest Rate

A fixed rate home loan is an interest rate that remains unchanging for a certain period. A fixed rate home loan usually lasts for around five years. You can choose to change to a variable interest rate after your fixed rate runs out, or you can arrange another fixed rate for a new period.

Pros For Fixed Rates

There are multiple reasons to choose fixed rate loans, including:

  • You know what your home loan monthly repayments will be, so you can budget effectively to keep your financial situation in check.
  • You are protected from sudden spikes in interest, unlike variable interest rates. The predictability of a fixed rate loan means you don’t have to worry about any interest changes.
  • There are generally fewer features of a fixed rate, so it’s less expensive. 
What is the Average Mortgage Interest Rate in Australia

Cons For Fixed Rates

Despite the predictability of a fixed rate, there are a few downsides. Some of the downsides of a fixed rate include:

  • You can benefit from variable interest rates if the interest rate decreases. However, you can’t get this benefit on a fixed rate because you lock in on a specific rate. 
  • You can switch to a variable interest rate when your fixed rate period ends. However, you will have to pay a break fee (the break fee will be higher if the interest rates have gotten lower since you started your fixed rate). There are also ongoing fees.

Variable Interest Rate

The opposite of a fixed rate; it can fluctuate depending on whether the interest rate goes up or down. The interest can change for numerous reasons, including changes in the property market, changes to the official cash rate, and more.

Pros For Variable Rates

  • A variable rate loan has more features than a fixed rate loan, so it is more flexible.
  • With a variable rate on a home loan, there is always a good chance that you can end up paying less interest (if the interest rates go down). You can also create an offset account for the home loan to pay less interest.
  • If you find a better variable rate loan or want to switch to a fixed rate loan, it is easy to do so, and you won’t need to pay any additional fees or ongoing fees.

Cons For Variable Rates

  • If you are an expat who needs to budget to keep your financial situation in check, a variable rate is not advisable because the interest rates will fluctuate often. You can’t create a monthly plan in case the interest rates rise.
  • Despite more features in a variable rate loan, they will make the loan cost a lot more.

Partially Fixed Interest Rate

Both a fixed rate home loan and a variable rate home loan have excellent features and significant downsides. Therefore it can be difficult for an expat to choose between them. However, there is a third option.

If you can’t decide between the two interest rates, you can choose a partially fixed interest rate (also called a split loan), which essentially combines the two interest rates. 

A partially fixed interest rate home loan splits the home loan in half; you can make half of the loan a fixed rate and the other half and variable rate. Alternatively, you can split the loan any way to want, for example, 80% fixed and 20% variable rate.

Other loans include principal and interest loans and a smart booster home loan. A principal and interest home loan allows you to pay off a part of the full loan and some interest every month (principal and interest equals full loan and interest of the loan). A smart booster home loan is a home loan with a small starting rate and no ongoing fees.

Get a free Australian mortgage assessment today.

Apply online to get a free recommendation with real rates and repayments.

Average Mortgage Interest Rate Australia: Final Summary

Australia’s average home loan interest rate is 2.94% for outstanding home loans and 2.52% for new home loans (based on January 2022 RBA statistics). Both of these numbers are currently on a downward trend. Therefore, new home loans are best for expats because they have the lowest interest rate. 

Expats should consider variable rates on home loans because they have the chance for less interest, but there are also fixed loans, principal and interest loans, and more.

What is the Average Mortgage Interest Rate in Australia

Frequently Asked Questions

What Is The Average Mortgage Interest Rate In Australia In 2022?

The average home loan interest rate in Australia is 2.94% for outstanding home loans and 2.52% for new home loans. Both of these are on a downward trend. 

In January 2021, the interest rate for outstanding home loans was 2.79% and 3.26% in Jan 2020. If the interest rate for outstanding home loans continues the trend, there will be an estimated 0.1% drop by 2023.

What Types Of Mortgage Interest Rates Are Available For Expats In Australia?

There are three primary home loan interest rates available in Australia, including:

  • Fixed home loan options have a specific interest rate; great for budgeting, but you will miss out if the home loan interest rate lowers.
  • Variable interest rate home loan options are great if you want lower rates but aren’t advisable for budgeting.
  • A split home loan is a mixture of both rates.

How Can An Offset Account Help With Reducing Interest?

An offset account is an account that links to your home loan. An offset account is excellent for helping to reduce the interest on your home loan because the more of your home loan is in the account, the less your interest will be (an offset account is excellent for expats because of this).

You can open an offset account via your bank.

How Can Expats Save On Interest Payments In Australia?

Expats need to get the lowest home loan interest rates possible when applying for a home loan, especially if you need to budget.

You can use our ODINmortgage mortgage repayment calculator to work out the best possible repayment plan for your mortgage. It will tell you precisely what your mortgage repayments will be and how much interest you can save when using the plan. You can also open an offset account.

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