New lowest home loan interest rate of 1.58% but there is a catch
There’s a new lowest introductory rate in the home loan market, and it’s a timely reminder for homeowners to look at the fine print and compare their options.
The record breaking home loan floating rate of 1.58% comes from Orange Credit Union and is available for an introductory period of two years. After that it is again 2.89%.
The Introductory Essential 2 Year Variable Rate Home Loan is only available for new lending and prospective buyers can get mortgage approval with as little as 5% down payment.
While this rate is competitive, it’s important to know that introductory offers are designed to attract new customers. This can usually work in favor of the borrower, especially in combination with other offers such as a cashback deal, but after this period the interest rate is changed again.
Usually the repayment rate of a home loan is higher than the introductory offer. So you should make sure that at the end of the introductory phase you can afford the new, higher interest rate.
Because variable home loan interest rates are volatile in the market, you should keep in mind that if the cash rate were to increase over the next two years, the repayment rate may be higher than you expect, which has been recommended by some experts.
A competitive season for variable interest rates
This competitive introductory rate comes in the middle of a roller coaster year for home loan interest rates. Although the Reserve Bank of Australia kept the cash rate at 0.10% since November last year, rates have been far from stationary.
In 2021 alone, 107 lenders cut at least one variable rate, with most cut only on the variable base rate and new customers. For this reason, the number of variable interest rates below 2% increased from 15 at the beginning of the year to 65 last year. The adjustable rate home loan market is becoming increasingly competitive for potential borrowers.
Fixed interest rates have now risen steadily, with the four big banks having raised fixed interest rates three to four times in the last two months alone. Borrowers looking to snag a fixed rate below 2% may now need to consider lenders outside of the big four.
For homeowners considering refinancing in 2022 and first time home buyers, it is a timely reminder to compare the market before signing on the dotted line.
With a number of competitive home loans available in the market under 2% for both variable and fixed rate options, it may be worthwhile to research your best home loan option. Comparison tools like spreadsheets and calculators can be helpful in allowing borrowers to filter and create a shortlist of tailored home loan options.
Remember that a home loan is more than the interest rate on offer. It pays to compare all of the fees as well as the lender’s features and flexibility.
To help you get started with your home loan comparison, here are the lowest interest rates in the RateCity database, including the lowest ongoing floating rate.
Source: RateCity.com.au. Note: Based on owner-occupier rates that pay principal and interest, excluding introductory and low-interest home loan rates. Data correct from 12/15/21.