Will we soon see the end of 'record low' home loan rates?

author-avatar By on February 17, 2021
Will we soon see the end of 'record low' home loan rates?

It seems like all the most competitive home loans are now fixed, but that might not continue for much longer.

Last year was, shall we say, an unprecedented year, particularly for finance and particularly for home loans.

Commonwealth Bank's half-year results revealed its fixed loan book grew 38% compared to the first half of 2020.

As Australia's largest home lender, Commbank's results tend to be a good indication of the rest of the market, and fixed rate home loans in particular have been slashed by massive amounts in recent months. 

Just this morning, ME Bank reduced its 'Member Package' loan for owner occupiers with an 80% LVR by 20 basis points to 1.99% p.a. (3.33% p.a. comparison rate*).

This is the bank's first foray into the sub-2% home loan market, and yes, this home loan is fixed for two years.

Back in November, NAB chief Ross McEwan said the growing popularity of fixed lending was because borrowers want loan certainty in times of uncertainty.

While this is a factor, another big factor is lenders with a banking licence have access to the Reserve Bank's 'Term Funding Facility' (TFF), a pool of around $200 billion for lenders to use at an interest rate of either 0.10% or 0.25% over three years. 

"There has been a huge demand for fixed rate loans because of the highly competitive pricing – we’re seeing record low fixed rates," Tic:Toc's head of marketing Laura Osti told Savings.com.au.

"To stimulate the economy, the Reserve Bank of Australia has been making it cheaper for banks to borrow over a longer time period - which means very low fixed rates." 

The big four banks in particular have access to tens of billions in the TFF, while non-bank lenders miss out on the funding as they do not have a banking licence.

However, Westpac's chief economist Bill Evans said the "prospects for continuing the Term Funding Facility are low" after the Reserve Bank Minutes from its meeting earlier in February pointed to its reshaping in June 2021.

"[The] RBA will reshape the Term Funding Facility when the current scheme expires [at the end of] June to narrow the focus on specifically boosting business lending," Mr Evans said.

An extension would only happen if "there was a marked deterioration in funding and credit conditions”, according to the Reserve Bank governor Dr Philip Lowe, which Mr Evans said was "extremely unlikely".

"In that regard the Minutes noted that the national house price index had returned to highs of four years earlier; there were few signs of a deterioration in lending standards; and new loan commitments for owner occupiers were above the previous high of 2017; although investor loan commitments remained 'well below earlier peaks'," Mr Evans said.

To fix or not to fix?

Tic:Toc's Ms Osti pointed out some of the pitfalls of fixed home loans.

"There is less flexibility with a fixed rate home loan, so if your position changes and you want to change your loan during the fixed term, you could be stuck with large break costs which will probably outweigh the saving you’ve made from the rate," she said.

One mortgage broker who spoke to Savings.com.au back in July said one borrower was hit with a $35,000 break fee for exiting a five-year fixed loan early.

Many fixed loans also do not allow the borrower to make extra repayments.

However, Ms Osti also pointed to the benefits of fixed lending.

"If you want certainty of repayments and are in a position to take a longer term view, it is definitely a good time to do your research and find a competitive fixed rate with the features you want," she said. 

"Look out for the roll-to rate, which points out what variable rate you’ll be rolling to after your fixed term."

Photo by Lochlainn Riordan on Unsplash


The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

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Harrison is Savings.com.au's Assistant Editor. Prior to joining Savings in January 2020, he worked for some of Australia's largest comparison sites and media organisations. With a keen interest in the economy, housing policy, and personal finance, Harrison is passionate about breaking down complex financial topics for the everyday consumer.

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