Why home loan rates won't drop any lower

By YIP | 06 Aug 2020

In the latest episode of YIP Talk, Your Investment Property’s podcast, editor Sarah Megginson chats with Raj Ladher, home loan specialist at Your Mortgage Broker – and they dig right into the nitty gritty to do with the low home loan rates that are on offer right now.

“This is obviously one of the biggest ‘hot topics’ in property at the moment. Coronavirus has come through and kind of turned everything upside down, but in terms of mortgages, borrowers are actually now substantially better off than they were this time six months ago,” explains Megginson.

“In January, loans were mid- to high- three’s in interest rates and now we’re seeing low two’s and even just recently, interest rates with a one in front of them.”

Have interest rates reached their floor?

Ladher sas that in his entire broking career, he’s yet to see interest rates fall this low.

“Rates beginning with a one is unheard of and I’ve been in the industry for 14 years and I’ve never seen it before. It’s really, really good news for a lot of borrowers out there,” he says.

“Banks right now are trying to minimise the number of borrowers leaving them. They’re looking at enticing people to lock in their rates to that end. If we’re talking the market average, we are talking of fixed rates that begin probably around the 2.2 to 2.3 percent mark and that’s a fixed rate for a two and three-year rate and that’s avialable with a lot of your major lenders.”

Over the last two or three months, fixed rates in particular have dropped to these historica lows, which is interesting because banks generally factor in a 2 percent buffer when setting their rates.

The cash rate – which is the amount that banks get charged for the money they lend – is currently sitting at 2 percent.

And with the cash rate sitting at 2 percent, there is not much “buffer” left for banks to play with.

“A rate of 1.99% is extraordinary and really a reflection of these extraordinary conditions that we’re in it at the moment,” Megginson says.

“I think the bottom line is that anyone with a mortgage should be paying really close attention to their home loan at the moment and if they haven’t refinanced in the last 12 months, now is the time to look at doing that.”

Tune in to the rest of Sarah and Raj’s chat about interest rates, where they’re headed and how to get the best deal here.

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