How lower interest rates could save you
money on your home loan
Last updated: 9 April 2025 | Estimated read time: 5 Minutes
Interest rates and home loans go hand in hand, but how does your rate affect your repayments? Fluctuations in rates over your loan term mean your repayments will shift, both up and down. For borrowers, a lower interest rate means lower repayments and less stress on your overall budget. But how can you make the most of lower rates? Read on to find out.
What are home loan interest rates?
Home loan interest rates are what you pay to borrow money from a lender. They determine your total monthly repayment. They can be fixed, variable or a split between the two.
Your interest rate is influenced by a number of things including the Reserve Bank of Australia’s (RBA) official cash rate. Your lender decides what rate you are charged.
How do lower interest rates benefit homeowners and buyers?
Put simply, lower interest rates can make a mortgage more affordable. Here’s how:
Lower monthly repayments
Increased borrowing power
Long-term savings
Understanding your options when rates go down
If you’re on a fixed rate, your interest rate remains the same until the end of the fixed term period. But if you’re on a variable rate, your interest rate will go down to the rate your bank sets. If you’ve seen lower rates elsewhere in the market, you could try negotiating a lower rate with your current lender or refinancing with another lender at a lower rate.
How lower interest rates impact your monthly repayments
No matter how small the drop, lower interest rates will reduce your monthly repayments. Here’s an example using our Home Loan repayment calculator:
If you have a $600,000 loan with an interest rate of 6.50% p.a. over a 30-year term, repayments are $3802 a month. A 0.5% p.a. interest rate drop would reduce your repayments by $195 a month to $3607. A full 1% p.a. reduction would reduce payments by $386 a month.
Steps to refinance for a better rate
Refinancing can help you take advantage of lower interest rates with a loan that better suits your needs. It also could be a good option if your fixed rate term is coming to an end. Here are the steps to take:
1. Look at where you are now.
Make sure you’re across the details of your current loan terms and interest rate, find out how much you have left owing and the remaining loan term.
2. Research new loan options
Compare lenders and loans based on what’s most important to you. Lenders with the lowest rate might not have features like offset accounts. They may also charge higher fees or take you back to a 30-year loan term. There are comparison websites out there, or a broker can help pinpoint the loan that would be best for you.
3. Assess the costs and savings
If you’re not working with a broker, a mortgage switching calculator can help you determine how much you could save by refinancing. Make sure you factor in things like exit, establishment and settlement fees into your overall assessment.
4. Make an application
Once you’ve found the loan that suits you best, it’s time to apply. With Pepper, eligible customers can apply online in less than 20 minutes. Remember to have all your documentation ready to go, like proof of income, current loan and property details.
5. Settle on the new loan
New loan contract and wait for settlement. Your new home loan will pay off your current home loan, and you’ll start making repayments on the new loan.
What to think about when refinancing
Like with any financial decision, it’s important to look at the risks and potential pitfalls of refinancing. A lower rate might sound appealing, but when you factor in longer loan terms and fees, it might not get you ahead in the long run.
Tips for negotiating a lower interest rate with your lender
Refinancing isn’t the best option for everyone, and sometimes it’s best to stick with your current loan. But that doesn’t mean you don’t deserve a lower rate, and it’s perfectly fine to ask. Here’s some tips to give it a go:
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Home loan interest rate FAQs
Rates are influenced by a few things, including the RBA’s cash rate, current economic conditions and lender policies for different types of products.
There’s no easy answer to this one, it really relies on the overall economic climate. The RBA meets monthly to discuss the national cash rate so there is the potential for interest rates to move month to month.
The short answer is yes, switching lenders can get you a lower interest rate. But it’s important to really look into the overall costs and how much it saves you in the long run.
There are lots of potential fees that accompany refinancing your home loan. Entry and exit fees, application fees, legal fees and valuation fees. These should be factored into your final decision.
You can look into it, but the costs and hassle of refinancing could potentially outweigh the benefits. Chat to a broker or a lending specialist if you’re not sure.
One type of loan doesn’t suit everyone, that’s why there are so many options out there. So you need to compare based on your individual needs. Things that set loans and lenders apart include interest rates, loan terms, extra features and fees associated with the loan.
If you’re keen to make the most of lower interest rates, there are options that could help you save in the short and long term. With a few simple steps, you can figure out if you’re in the best place with your current lender or if there’s room for improvement.
Contributor | Barry Saoud, General Manager, Mortgages and Commercial Lending
Barry joined Pepper Money in July 2021 as General Manager, Mortgages and Commercial Lending. He is responsible for the strategic direction and operating performance across product, credit, and settlements for mortgages, commercial loans, personal loans, and direct sales. Read more.
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Need some help with your refinancing?
There's a lot refinancing can do; from unlocking your equity to consolidating debts in to your home loan.
Some great resources are here to help you understand your options.
Information provided is factual information only and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser.
All applications for credit are subject to credit assessment, eligibility criteria and lending limits. Terms, conditions, fees and charges apply.
The results of the borrowing power calculator are based on information you have provided and is to be used as a guide only. The output of the calculator is subject to the assumptions provided in the calculator (see 'about this calculator') and are subject to change. It does not constitute a quote, pre-qualification, approval for credit or an offer for credit and you should not enter commitments based on it. The interest rates do not reflect true interest rates and the formula used for the purpose of calculating estimated borrowing power is based on the assumption that interest rates remain constant for the chosen loan term. Your borrowing power amount will be different if a full application is submitted and we complete responsible lending assessment. The results in the calculator do not take into account loan setup or establishment fees nor government, statutory or lenders fees, which may be applicable from time to time. Calculator by Widgetworks.
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