The gap has halved since record low cash rates in late 2020. Image: Canva.
  • The gap has halved since record low cash rates in late 2020
  • Refinancing is also becoming impossible for some borrowers
  • Home loan interest rates unlikely to dip to Covid lows again

Home loan interest rates will undoubtedly move up again as yet another interest rate rise hit earlier this week.

It is the twelfth time the cash rate has risen since the record lows of 0.1%; the official rate is now 4.10%.

Recent research from Roy Morgan estimated that, prior to the latest rate rise, some 1.38 million mortgage holders, or just above one in four (27.8%), were at risk of mortgage stress.

With the rates rising to 4.10%, the research said the number of Australian mortgage holders now at risk rises to 1,408,000; a further 25 basis point rise in July will take the number of Australian mortgage holders at risk of mortgage stress to 1,455,000, on par with GFC levels.

The rate gap narrows

Canstar provided The Property Tribune with insights into the impacts of Covid across the average variable home loan interest rates in Australia, including two year, three year, and five year fixed rates.

Source: Canstar.

The margin between the average variable rate and the two-year fixed rate at the end of February 2020 prior to the first cash rate easing was 0.56%.

This widened to 0.99% by the end of November 2020 when the cash rate had dropped to just 0.10%. Since rates started rising, this has narrowed to just 0.49% today.

The Covid effect on home loan interest rates


Before COVID-19 Cash Rate Easing (Feb-20) End of COVID-19 Cash Rate Easing (Nov-20) Difference
Cash Rate 0.75% 0.10%


Variable Rate

3.69% 3.31% -0.38%
2 Year Fixed Rate 3.13% 2.32%


3 Year Fixed Rate

3.15% 2.34% -0.81%
5 Year Fixed Rate 3.41% 2.65%


Source: Canstar 24/05/2023. Interest rate based on the average owner-occupier loan on Canstar’s database, available for a $500k, principal & interest, 80% LVR loan, excluding introductory and other special condition loans. Monthly repayments assume a loan term of 30 years.

Running the numbers, Canstar said that the additional rate rise to 4.1%, as predicted by ANZ and NAB, will see monthly repayments rise by $82 per month on a $500,000 loan over 30 years to reach $3,183.

Impact of the rate rise to 4.10%


3.85% Cash Rate

0.25% Increase (4.10%) Difference
  New Borrowers Existing Borrowers New Borrowers Existing Borrowers New Borrowers

Existing Borrowers

Interest Rate

6.32% 6.73% 6.57% 6.98%  
Monthly Repayments ($500k, P&I, 30 years) $3,101 $3,236 $3,183 $3,320 $82


Source: Canstar – 24/05/2023. New Borrowers: Based on the average owner-occupier variable loan on Canstar’s database, available for a $500k, principal & interest, 80% LVR loan, excluding introductory and other special condition loans. Existing Borrowers: Based on May-22 interest rate with cash rate increases applied.  Monthly repayments assume a loan term of 30 years.

Will rates ever go to Covid lows again?

Unlikely, says Mozo‘s banking and interest rates expert, Peter Marshall.

“As the global economy moves to more ‘normal’ positioning following the Covid years, central banks have been lifting interest rates and the cost of funding for banks has been increasing.”

“This means that we are unlikely to return to rates as low as those we saw during Covid,” Marshall told The Property Tribune.

With the cheap funding for the big banks now running out, is it bad news for the borrower?

Home Loan Experts‘ Otto Dargan told The Property Tribune:

“We think that this was inevitable and that it’s good for Australia overall but not necessarily for borrowers.

“We think that smaller lenders are likely to start offering better deals than major banks so it is time to watch ING, Macquarie, Suncorp, Resimac, Adelaide Bank and others.”

If banks cut rates, will the RBA too?

In May, The Property Tribune reported that several lenders and big banks cut their owner-occupied fixed home loan rates.

While that’s good news for those shopping around for a better deal, it is not necessarily a sign of what the Reserve Bank of Australia (RBA) will do.

Canstar’s Group Executive Financial Services, Steve Mickenbecker, then said:

“The move by NAB and the 32 other lenders on Canstar’s database to cut owner-occupied fixed rates this month suggests variable rate cuts are in the future but gives no guidance on Tuesday’s Reserve Bank decision.

“A more accurate guide to variable home loan rates is the bank bill swap rate and is also closely aligned with the Reserve Bank cash rate. It has only moved down around 0.05% since the start of March.”

Refinancing now impossible for one in five Australians

As covered when the rate rise was announced, experts said refinancing to a better home loan rate is no longer an option for some.

“We’re still seeing around 20% of people looking to refinance coming to us with an LVR (Loan-to-Value ratio) of 80% or more, which locks some homeowners into mortgage prison as they cannot afford to refinance,” said Compare Club Chief Operating Officer Brendan See.

The incentive to refinance is also quickly diminishing, with lenders ceasing their cashback offers; it is also expected that other sweeteners are likely to continue disappearing.


Before making any financial decisions, please do your own independent research, taking into account your own situation. This article provides factual information only and is not intended to imply a recommendation or opinion about a financial or credit product. See our Terms of Use.

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