Interest Rates and Mortgages

Interest rates and mortgages
Updated: July 7, 2023
First Published: May 19, 2022

Mortgages, home loans and interest rates are a necessary evil for most people buying property in New South Wales. Here we explain the basics of interest rates and how they apply to loans.


What is interest?

Basically, interest is the fee you pay to use someone else’s money. The amount of interest you pay depends upon a few things including which lender you are using, the amount of money you borrow, and how quickly you repay the loan.

Every bank or lender sets their own interest rates. This is determined by the type of loan, the length of the loan and the amount you borrow. Short-term and smaller loans like credit cards carry a higher interest rate than a mortgage.

Why do interest rates change?

Interest rates are set by your lender but they are also influenced by changes to the Reserve Bank of Australia’s official cash rate. The Reserve Bank’s cash rate sets the market standard for borrowing and lending money. If the cash rate goes up, lenders will increase interest rates. If the cash rate goes down, lenders will lower interest rates. Well… most of the time.

How does the Reserve Bank set the official cash rate?

The Reserve Bank meets on the first Tuesday of every month to decide what rate to set as the official cash rate. They publish the official cash rate on their website.

Generally, if economic growth is slow then the Reserve Bank will lower the official cash rate. This (usually) means banks will lower the interest rate on your mortgage and you will (hopefully) spend money on other things, stimulating the economy. If economic activity is too high, the official cash rate is increased to reduce spending and increase loan repayments.

What’s the difference between a fixed loan and variable loan?

At the start of your loan, the bank will set your interest rate. With a variable home loan, the rate may change over time – most likely when the Reserve Bank increases or lowers the official cash rate.

With fixed home loans, the rate is set for a period of time – anywhere from 12 months to 5 years and will not change on a fixed loan during this time.

Many people like having a fixed home loan because it provides certainty on the amount you need to repay each month.

How do I get the best interest rate for my home loan?

The best thing you can do is shop around! Check out what banks are offering and see if you can get a better deal elsewhere.

How can you help me?

Our lawyers are always happy to review your mortgage and home loan documents. Some lenders even require clients to meet with a solicitor before they will allow them to borrow money. If you need advice and assistance, feel free to contact our office to make an appointment.

For more information on conveyancing, mortgages and loans, see our article Conveyancing Questions: The A To Z Of Conveyancing

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This article is intended to be general information only and is not legal advice. You should obtain specialist advice based on your specific circumstances before taking any action concerning the matters discussed in this article. The content is current at the date of publication.
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