New lowest home loan rate of 1.58%, but there’s a catch

There’s a new rock-bottom introductory rate on the home loan market, and it’s a timely reminder for homeowners to look at the fine print and compare their options.

The record-breaking 1.58% variable home loan rate comes from Orange Credit Union and is available for an introductory period of two years. After this, it reverts to a rate of 2.89%.

The Introductory Essential 2 Year Variable Rate Home loan is available for new lending only, and would-be buyers may gain mortgage approval with a deposit as little as 5%.

While this interest rate is competitive, it’s important to be aware that introductory offers are designed to attract new customers. This can typically work in the borrower’s favour, particularly when paired with other offers, like a cashback deal, but they will revert to a new interest rate when this period ends.

Typically, a home loan revert rate is higher than the introductory offer, so you’ll want to ensure that come the end of the introductory period, you can afford the new, higher interest rate.

As variable home loan rates are subject to market fluctuation, it’s worth keeping in mind that the revert rate may be higher than you expect if the cash rate were to increase over the next two years, which it has been tipped to do by some experts.

A competitive season for variable loan rates

This competitive introductory rate comes amidst a rollercoaster year for home loan interest rates. Despite the Reserve Bank of Australia leaving the cash rate on hold at 0.10% since November last year, interest rates have been anything but stationary.

In 2021 alone, 107 lenders slashed at least one variable interest rate, with most cuts for basic variable rates and new customers only. Due to this, the number of variable rates below 2% have increased in the last year, growing from 15 at the start of the year to 65. For would-be borrowers, the variable rate home loan market is becoming increasingly competitive.

Meanwhile, fixed interest rates have steadily increased, with the big four banks hiking fixed rates between three and four times in the last two months alone. Borrowers looking to nab a fixed rate below 2% may now need to consider lenders outside of the big four.

For homeowners considering refinancing in 2022, and for first home buyers, it’s a timely reminder to compare the market before you sign on the dotted line.

With a range of competitive home loans available on the market under 2% for both variable and fixed rate options, it may be worth shopping around for your best home loan option. Comparison tools, such as tables and calculators, may be helpful in allowing borrowers to filter down and create a shortlist of tailor-made home loan options.

Keep in mind that there is more to a home loan than the interest rate offered. It’s worth comparing any fees, as well as features, and flexibility offered by the lender.

To help you start your home loan comparison, here are the lowest interest rates on the RateCity database, including the lowest ongoing variable rate.

Source: RateCity.com.au. Note: Based on owner-occupier interest rates paying principal and interest, excludes introductory and low-doc home loan rates. Data accurate as of 15/12/21. 

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