Should I lock in my interest rate in Australia now?


If you’re taking out a home loan in 2023, you may be choosing between fixed and variable-rate mortgages. While there are benefits to both, the current rising interest rates in Australia mean it’s now more important than ever to choose the right mortgage for your financial situation. In this article, we’ll cover the best options for your home loan in 2023. 

Let’s get to the following commonly asked questions: 

  • What is fixed interest?
  • Will interest rates go down in 2023 in Australia?
  • Should I lock my interest rate now?
  • How high will interest rates go in 2023 Australia?
  • Should I fix it for 2 or 5 years?
  • What will mortgage rates be in 2024?
  • Is now a good time to fix my mortgage?
  • Who is worse off when interest rates rise?

Q1. What is fixed interest?

A fixed-interest or fixed-rate home loan refers to when a mortgage has a fixed interest rate for a set period of time, most often between one and ten years. With a fixed-interest mortgage, your loan term won’t change and your monthly repayment will remain the same until the fixed interest is over. 

Q2. Will interest rates go down in 2023 in Australia?

Interest rates have risen significantly over the past two years and variable home loan rates could reach up to 6.86 percent by mid-2023. It’s unlikely that interest rates will go down in Australia throughout 2023, and variable-rate home loans could rise further as the cash rate is expected to climb again in April 2023. Fixed home loans are, therefore, the better option for home buyers looking to buy a home in the next few years. 

Q3. Should I lock my interest rate now?

Now is the perfect time to fix your mortgage to avoid paying higher home loan repayments over the next five years. Even the lowest variable rate offers on the market will be higher than usual due to the rising RBA cash rate hikes pushing current interest rates in Australia. Note: If you want to avoid uncertainty, fixing your home loan will guarantee you pay the same amount every month to give you peace of mind. 

Q4. How high will interest rates go in 2023 Australia?

Interest rates are hiking in Australia thanks to rising inflation, low employment rates, and slow economic growth. Directly impacted by the effects of the Covid-19 pandemic, the Reserve Bank of Australia (RBA) has been increasing the cash rate steadily since 2022. As of 2023, the RBA increased interest rates by 25 basis points, and the cash rate is now 3.35 percent as of February 2023. 

Since inflation is slowing, experts predict Australia’s interest rates will reach 3.6 percent in March 2023 and will remain the same until the end of the year. By March 2024, rates should begin to decrease and should decline to 2.85 percent by 2024. 

Q5. Should I fix it for 2 or 5 years?

If you’re unsure whether to opt for a fixed or variable home loan, we would recommend a fixed rate term to avoid rising interest rates and having to make extra repayments. Fixed home loan rates are usually between one and ten years, and depending on your financial situation, a longer fixed rate period would be preferable. 

Note: While you could save more money if you fix your loan for a shorter period of time (since you’ll benefit from lower repayments when the interest rate declines), this is also a risky strategy. Instead, a longer fixed term will provide peace of mind as your repayments will remain the same monthly. This allows you to better budget.

Q6. What will mortgage rates be in 2024?

In 2024, experts predict that the average rate of home loans will be 4.4 percent and will remain that way into 2025. Borrowers can expect lower rates by the end of 2023, with home loan interest expected to fall to 5.25 percent by the end of the year. While this might sway you to take out a variable loan, it’s still safer to take out a fixed-rate loan. 

Q7. Is now a good time to fix my mortgage?

While it was an excellent idea to fix your interest rate during the pandemic, with mortgage rates falling below 2 percent, the average mortgage rate in Australia in 2023 is currently 5.71 percent. Locking in now could mean you’re stuck with a high home loan interest rate for years to come, and your mortgage repayment will increase monthly.

Important: If you do decide to fix your loan, it should only be for two years maximum since home loan rates are expected to go down in 2024 and 2025. 

Q8. Who is worse off when interest rates rise?

Those that take out variable-interest loans on assets like houses and cars will face rising monthly repayments when interest rates rise. However, during an interest rate rise, those that save money every month will earn high interest on those savings. 

Summing up 

If you do decide to fix your loan to avoid rate hikes, you’re best only fixing for up to two years. While interest rates are climbing in 2023, the next few years will see a decline in the RBA cash rate, and mortgage rates will return to normal. 

If you liked this article, check out our WeMoney blog for more financial advice. Alternatively, read our article on ‘how to manage credit card debt’.

Wait! We’d love to hear your thoughts

If you enjoy using our app, please take a moment to rate it in the App Store. Your feedback in the past has tremendously helped us at WeMoney to improve the app to help it be the best that it can be. A massive thanks to each one of you for making that happen!

Disclaimer: The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs or financial situation.

Turn your learnings into practice
Try WeMoney today.