Sticking with high interest rates could cost borrowers thousands

Borrowers who opt to wait for the Reserve Bank to cut the cash rate rather than securing a better home loan rate now could end up paying thousands of dollars more in repayments and interest, according to new research from financial comparison site Canstar.

Canstar’s projections show that if a borrower sticks with the average variable rate of 6.88% and continues monthly repayments of $3,944 for a $600,000 loan over 30 years, they could pay $3,544 more in repayments and $4,523 more in interest over the remainder of 2024 compared to getting into the lowest ongoing variable rate of 5.75% now.

“If borrowers opt to wait for the Reserve Bank to cut the cash rate and lenders to follow suit, they could be facing thousands of dollars in additional repayments and interest,” said Steve Mickenbecker, Canstar’s finance expert.

“However, seizing the opportunity to switch now could result in considerable savings, especially with the first forecasted rate cut in November.”

Switching to the lowest variable rate now and capitalising on the anticipated 0.25% cash rate cut forecasted by the major banks in November could boost the savings to $3,730 in repayments and $4,771 in interest.

However, Mickenbecker noted that uncertainties still loom, with stronger than expected inflation, impending tax cuts, and undisclosed cost of living relief in the federal budget potentially prolonging the wait for rate relief into next year.

“The blowout in inflation in the March quarter, up 0.4 percent from the prior quarter to 1.0 percent, means that borrowers are not out of the woods yet. Cash rate cuts are likely to be pushed back and if there isn’t lower inflation in the June quarter, a rate increase later this year will be the next bitter pill for borrowers to swallow,” he said.

Mickenbecker advised borrowers to get a lower rate now and bank repayment savings to help ride out the tides until rate cuts come, and to build a buffer in case inflation escalates and rate rises are back on the Reserve Bank’s agenda.

The value of loans refinanced to a new lender is down $5.48 billion since the peak of $21.5 billion in July 2023, which is worrying when forecasts for rate cuts are still six months or more away, according to Mickenbecker.