Record-low cash rate and mortgage rates, but existing customers pay a penalty

Senior News Journalist · 7 September 2021
With the Reserve Bank leaving the official cash rate at the all-time low of 0.10% today, home loan interest rates have never been cheaper. But Canstar analysis shows the cheapest rates are usually reserved for new customers, meaning existing customers pay a penalty for their loyalty unless they shop around.
Existing vs new customer rates
New data shows it pays to compare your mortgage rate regularly. Image: fizkes/

Canstar’s research analysts crunched the numbers on the Reserve Bank of Australia (RBA)’s Housing Lending Rates data, finding existing owner-occupier home loan customers were paying an average variable rate of 3.05%, while new customers in July were paying an average of 2.72%.

That’s a difference of nearly $1,070 over the course of a year in interest on a 30-year, $500,000 mortgage with principal and interest repayments.

Canstar money expert Effie Zahos said the data showed how interest rate complacency could be a handicap to mortgage holders, as those that put off shopping around could end up paying a penalty for their loyalty to their bank.

“It’s an age-old problem that the best deals, the cheapest deals, go to new customers while existing customers get the more expensive rates on what’s called the ‘back end’ of the book, which essentially funds new customer rates,” Ms Zahos explained.

“If consumers don’t negotiate, shop around or refinance, they pay a penalty for their loyalty.

“That’s why it’s important to do – at the very least – an annual check on your home loan to make sure you’re still paying a competitive rate, or consider whether you would be better off asking your lender for a better deal. And if they don’t match it, refinance.”

New vs Existing home loans

The RBA announced it would keep the cash rate on hold at 0.10% at its board meeting today, with no plans to lift the official interest rate before 2024 unless economic conditions improve.

The low-rate environment has seen the introduction of cheaper home loan rates, with rates on Canstar’s database now as low as 1.69% (2.34% comparison rate) for a one-year fixed loan to owner-occupiers paying principal and interest.

Canstar saw 21 lenders cut 65 variable home loan rates by an average of 0.21 percentage points in August, while 11 lenders cut 53 fixed rates by an average of 0.14 percentage points and nine lenders increased 80 fixed rates by an average of 0.22 percentage points.

For home loan customers who want to avoid paying a higher interest rate penalty for their loyalty and save more money each month to relieve financial stress pressures, we’ve rounded up the top rates currently available on Canstar’s database.

Bear in mind that while important, interest isn’t the only factor when considering home loans. It’s also important to factor in fees, along with the features that are important to you.

There are also a number of home loan sign-up incentives on the market that may be worth considering, with cashback offers of up to $4,000 available in September.

Cheapest home loan rates on Canstar’s database

  • Variable: 1.77% (1.86% comparison rate) from Reduce Home Loans
  • One-year fixed: 1.69% (2.34% comparison rate) from Greater Bank
  • Two-year fixed: 1.79% (2.30% comparison rate) from Greater Bank
  • Three-year fixed: 1.85% (2.24% comparison rate) from UBank
  • Four-year fixed: 2.14% (2.85% comparison rate) from Teachers Mutual Bank
  • Five-year fixed: 2.27% (2.05% comparison rate) from Freedom Lend

Source: – 6 September, 2021. Based on owner-occupier rates on Canstar’s database available for a loan amount of $500,000, with any loan-to-value ratio and principal and interest repayments; including introductory loans. Lowest rate in each category based on the lowest interest rate, followed by comparison rate. Check with the lenders for more details about their home loan products.

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