4th October, 2017 | 4 minutes
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Interest rates increase for a third of mortgage holders over past year despite no movement from RBA

by Laura Crowden
iSelect Corporate Affairs Manager

Over 400,000 Aussie home owners are paying interest rates above 5 per cent.

With the Reserve Bank of Australia (RBA) keeping the official cash rate on hold for the 13th straight month, research released today by mortgage brokers iSelect suggests that a third (33%) of Australian households with a mortgage have had their interest rate increase during the last year.

While the official cash rate remains at a historic low 1.5 per cent, the Galaxy Research study commissioned by iSelect to assess the attitudes and behaviours of Australian mortgage holders[1], found one in four (25%) Australian mortgage holders say they are currently struggling to meet their monthly home loan repayments.

Laura Crowden, spokesperson for iSelect Home Loans, pointed out that that many home owners have been stung by a rate hike over the past year despite the official RBA rate remaining stagnant.

“A third of home owners have had their rate increase during the past 12 months and if the RBA was to increase the official cash rate, no doubt most lenders would quickly follow suit. This would mean more and more Aussie homes will have to find ways to cut back in order to afford their increased home loan repayments.”

It is concerning that a quarter of households are already struggling given the official cash rate is predicted to begin rising at some point over the coming year.

“Despite having access to low interest rates, record house prices have forced many families to significantly extend themselves with almost 40 per cent of households making their payments without having a surplus left over.”

“As such it is not surprising that many Aussie home owners are already struggling to make their monthly repayments even while interest rates are low,” said Laura.

The Galaxy Research found that if their interest rate was to increase by one per cent, over 780,000 mortgage holders (26%) would struggle to some extent to make their repayments. This includes 632,000 households (21%) who would have to cut back in other areas to meet their repayments and 150,000 households (5%) who would be forced to go into debt, borrow money or sell their home.

“We know from speaking to our customers that many Aussies are really feeling the pinch of rising cost of living pressures on their stretched household budget, especially as energy bills continue to skyrocket across much of the country,” Laura said.

With interest rates at record lows, it’s concerning the research found 54% of mortgage holders are paying an interest rate of 4% or over. Even more concerning is that 13% of mortgage holders (over 400,000 households) are paying over 5%.

“Home owners who are currently paying above four per cent should take advantage of the current low rate environment and move to a better deal before it’s too late.”

“Basically, if your interest rate doesn’t start with a three, you are paying too much.  Our iSelect Home Loans team has a number of lenders currently offering really competitive variable rates starting at just 3.79% for owner-occupier, principal & interest loans with a loan value ratio (LVR) of 80% or less.”[2]

A customer with an average $300,000 mortgage moving from the average rate of 4.26% to 3.79% would reduce their monthly repayments by $81 a month or $972 a year, and could save $29,308 in interest over a 30 year loan term.[3]

“But for those customers paying over 5 per cent, the potential savings are even greater.  For example, for a customer currently paying 5%, moving to 3.79% would see double the savings, with their monthly repayment falling by $214 and a potential saving of over $77,000 over the lifetime of their loan.”[4]

The fact one in ten (11%) of mortgage holders have had their rate fall over the past year highlights the importance of shopping around.

“With rates falling or on hold for the better part of a decade, its likely many home owners have become complacent and could be paying more than they need to.”

“Mortgage holders should regularly compare their rate against other competitors and be willing to vote with your feet and make the switch if necessary,” said Laura.

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[1] In September 2017 iSelect commissioned a nationally representative consumer research study with Galaxy Research to assess the attitudes of over 1,000 Australians household decision makers towards home loans.

[2] A number of lenders on the iSelect Home Loan panel are currently offering variable rates of 3.79% to owner-occupiers for principal & interest loans with a loan value ratio (LVR) of 80% or less.

[3] Calculation based on a $300,000 owner-occupied, principal and interest loan over a 30 year loan term with a loan value ratio (LVR) of 80% or less.

[4] As above.


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