The RBA has recently begun easing monetary policy, cutting the cash rate from 4.35% to 4.10% in February, and is expected to cut again in May. Now the big question is: will home loan interest rates fall again? This article provides a deep, beginner-friendly look at interest rate trends, what drives them, and what first-home buyers should do in a changing rate environment.
We’ll compare fixed vs variable home loans, discuss refinancing strategies, and explain how government and RBA policies affect mortgages. Throughout, we’ll answer key questions like “How low will interest rates go in 2025?” and “Should first-home buyers wait for lower rates?” with up-to-date data and expert insights from award-winning mortgage brokers in Brisbane.
Home Loan Interest Rate Trends
When looking at home loans, it’s useful to track the history of interest rates. Over time, rates have ebbed and flowed with the economy. In Australia, official rates peaked in the late 1980s and early 1990s – the RBA’s cash rate hit 17.5% in January 1990, the highest on record.
Those were inflationary times. Since then, the cash rate trended mostly downward: it was 7.25% just before the 2008 financial crisis, and then fell to virtually zero by late 2020 during the pandemic. In 2021–22, rising inflation forced the RBA to raise rates sharply, with the cash rate jumping from 0.1% in late 2021 to 4.10% by April 2025. This means standard variable home loan rates (which are typically 2–3 percentage points above the cash rate) went from the mid-2% range to the high 5%–6% range.
In short, Australia has seen everything from very high rates (over 17%) to near-zero rates in modern history.
Today’s rates are roughly back to levels seen in the late 2000s. The cash rate is 4.10% as of April 2025, and average variable home loan rates are about 5.8–6.5%, depending on the lender and loan features. For example, the Commonwealth Bank recently cut its lowest variable owner-occupier rate to 5.84%. Major banks usually price their offer rates slightly below 6%, plus fees. Fixed rates have also increased: a 3-year fixed home loan can cost around 5% or more.
Historical Mortgage Interest Rates in Australia
To visualise the long-term trend, here’s a simplified timeline of key points in cash rates and typical mortgage rates:
Period | Cash Rate | Mortgage Rate | Notes |
1980s–early 1990s | 10–17% | 12–15% | Highest-ever 17.5% in Jan 1990 |
Mid-1990s | ~6.5% by late 1998 | 8–10% | |
2000s | 4%–7% | N/A | 4.5% in mid-2002, 7.25% in Aug 2008 (GFC) |
2008–2019 | Generally decreasing | Generally decreasing | Cash rate hit 1.5% in Aug 2016, 0.1% by Nov 2020 |
2021–2025 | 0.1% (Nov 2020) to 4.10% (Apr 2025) | Variable rates up to 6%+ | RBA raised rates to combat high inflation |
These swings mean home loan payments have varied greatly. In the mid-2000s, many borrowers had 5–6% mortgages, while through 2021–22, many enjoyed 2–3%. Now we’re back to 5–6%.
While mortgage rates closely follow the cash rate, they also depend on bank funding costs and competition. Today’s rates include lender margins and any discounts for package loans. The trend for borrowers is that with the cash rate near a 15-year high, mortgage rates are much higher than a few years ago. However, as we’ll see, many analysts expect rates to decline in 2025–26, which would bring mortgage costs down.
Interest Rate Predictions by Financial Institutions
A key question on every homebuyer’s mind right now is: Will home loan interest rates go down? The short answer is — most likely, yes, but not immediately or dramatically. Recent forecasts from Australia’s major banks, coupled with movements in financial markets, suggest that we may see a turning point in 2025. However, any rate reductions will likely be cautious and spaced out over time.
What The Big Banks Are Saying
Major financial institutions in Australia have adjusted their forecasts in recent months. After a prolonged period of interest rate hikes aimed at curbing inflation, the outlook is beginning to shift. Several of the big four banks now predict that the Reserve Bank of Australia (RBA) will continue cutting rates in 2025.
- Westpac expects the cash rate to fall to around 3.35% by December 2025.
- Commonwealth Bank (CBA) shares a similar outlook, also predicting a fall to 3.35% by year’s end.
- National Australia Bank (NAB) is even more optimistic, projecting a sharper decline to 2.85%, assuming inflation eases as expected.
- ANZ, while a little more reserved, has projections aligned with a 3.35% rate by December 2025, though their public forecasts stop at mid-2026.
Cash Rate Forecasts By Major Banks
Date | Westpac | NAB | CBA | ANZ |
Jun 2025 | 3.85% | 3.10% | 3.85% | 3.85% |
Sep 2025 | 3.60% | 2.60% | 3.35% | 3.35% |
Dec 2025 | 3.35% | 2.85% | 3.35% | 3.35% |
Jun 2026 | 3.35% | 2.60% | 3.35% | – |
Sep 2026 | 3.35% | 2.60% | 3.35% | – |
Dec 2026 | 3.35% | 2.85% | 3.35% | – |
Source: Bank Economic Outlook Reports (as of April 2025)
These figures may not seem like a dramatic drop, but they do represent a meaningful shift from the current cash rate of 4.10% as of April 2025.
Market Indicators Support The Forecasts
It’s not just the banks that expect movement — the financial markets are pricing it in as well. Traders in the cash rate futures market are fully pricing in a 25 basis point cut by the RBA’s May 2025 meeting, with several more cuts anticipated throughout the second half of the year. This reflects growing confidence that the peak of the rate hike cycle is now behind us.
While forecasts vary, most agree that rates could fall into the low-to-mid 3% range by the end of 2025. However, these would still be above the ultra-low levels seen during 2020–2021.
Economic Outlook and Caution Ahead
Most economists are urging caution. Although inflation has shown signs of easing, it remains sticky in some sectors. A Reuters survey of analysts in April 2025 found that many expect a modest 25 basis point cut in May, more as “insurance” against economic slowdown than as a signal that inflation is fully under control. Mortgage brokers across Australia are advising clients to prepare for a gradual, not sudden, easing of borrowing costs.
What It Means for You
If you’re a current or future homeowner, don’t expect a quick return to pre-2022 levels. Rates will likely ease slowly, and only if economic conditions support it. Now is a great time to speak with a broker about locking in flexibility, reviewing your current loan, and preparing your budget for potential shifts ahead.
How Long Will High Interest Rates Last In Australia?
High interest rates are likely to persist through at least the middle of 2025, as the Reserve Bank of Australia (RBA) remains cautious in its approach to managing inflation. Although the worst of the inflation surge appears to be behind us, the RBA has signalled that it wants to see clear, sustained progress toward its 2–3% inflation target before committing to a full rate-cutting cycle.
This means that for the first half of 2025, borrowers should expect interest rates to remain at elevated levels—possibly hovering around the current cash rate of 4.1% or slightly below, depending on the pace of economic moderation. Many economists believe that if inflation continues to ease and wage growth stabilises without spiking, the RBA could continue making gradual rate cuts in late 2025 or early 2026. However, the central bank has made it clear that it will be guided by data, not dates.
For homebuyers and homeowners, this environment presents both challenges and opportunities. If you’re looking to buy, refinance, or lock in a fixed rate, now is the time to think strategically. With variable rates still relatively high and fixed rates beginning to reflect expectations of future cuts, choosing the right loan product depends heavily on your personal financial situation and long-term goals.
For example, some borrowers may benefit from a short-term fixed rate, locking in certainty while waiting for variable rates to fall. Others may prefer to stay on a variable rate to avoid paying a premium for fixed loans that could be higher than market rates in 12 months’ time. Alternatively, a split loan strategy (part fixed, part variable) can offer a balance of certainty and flexibility.
In this kind of environment, it’s more important than ever to seek tailored advice. At Hunter Galloway, we’ve helped thousands of clients navigate rate cycles just like this. Would you like help reviewing your current loan or calculating how future rate cuts might affect your repayments? Please give us a call on 1300 088 065 or book a free assessment online to see how we can help.
How High Will Interest Rates Be In 5 Years?
Forecasting interest rates
When you place yourself in Australia’s current monetary‑policy environment and then look out five years, most professional forecasts and market‑implied measures point to a materially lower cash rate than today, but still above the ultra‑low levels of the early 2010s.
Here’s how that outlook breaks down:
Today’s starting point: 4.10 per cent
As of the RBA’s April 2025 meeting, the official cash rate sits at 4.10 per cent—a level reached after an aggressive tightening cycle in 2022–23 to tame inflation.
Medium‑term analyst projections (2027–2028)
Looking beyond the next 12–18 months, a handful of independent forecasts suggest moderate “neutral” settings around 3–4 per cent:
- AUD Today sees the RBA cash rate at 3.60 per cent in February 2027 (range 3.35–3.85 per cent)
- The IMF’s commentary projects the cash rate averaging 3.5 per cent in 2027 and 3.1 per cent in 2028.
In five years, around mid-2030, the consensus range for Australia’s official cash rate is roughly 2.75–3.25 per cent, versus 4.10 per cent today. Any single forecast carries wide confidence intervals, but the broad message is one of gradual easing from current restrictive settings toward a more neutral stance.
Factors Affecting Home Loan Interest Rates
Interest rates on your home loan are influenced by many factors. The primary driver is the Reserve Bank of Australia’s (RBA) official cash rate, which sets the cost of funds for banks. When the RBA raises or lowers its target, retail home loan rates tend to follow. For example, when the RBA hiked the cash rate from 2022 to 2024, most banks passed on those increases in full to borrowers. Conversely, when the RBA cuts rates, banks often reduce variable rates, though sometimes not by the same amount.
1. Role of the RBA
The Reserve Bank of Australia’s main job is to maintain price stability with inflation around 2–3% and full employment. It meets monthly to set the cash rate. The RBA’s official statements explain their reasoning. For instance, after the April 2025 meeting, the RBA noted that “underlying inflation is moderating” but stressed caution until inflation returns sustainably to target. If inflation is above target, as it was in 2022–24, the RBA typically raises rates to cool demand. If inflation falls below target, it usually lowers rates to stimulate growth.
The RBA’s decisions on the cash rate filter through the economy, affecting mortgage, personal loan, and deposit rates.
Note: The RBA targets inflation, not home prices directly, but higher home prices can be linked to rising inflation if wages and demand are strong.
2. Inflation and Economic Indicators
Inflation: Inflation is a key driver of RBA policy. In Australia, inflation peaked above 7% in 2022, triggering rate hikes. By March 2025, inflation had eased to 2.4% year-on-year, near the target band. The RBA’s “core” measures had already fallen into the target range: trimmed-mean inflation was about 2.9% in Q1 2025. This disinflation has led markets to almost fully price in RBA cuts starting in May 2025. In fact, after the March 2025 CPI release, economists pointed out that the data “support the case for another cut in interest rates”.
Economic growth: Besides inflation, the RBA watches economic growth, wages, and unemployment. Low unemployment tends to boost wages and inflationary pressures. In April 2025, Australia’s unemployment was around 4.1% – quite low by historical standards, which is inflationary. However, recent job growth has slowed, and economists note the labour market is easing. This cooling labour market gives the RBA room to cut rates, since wage pressures (a key inflation source) are abating. Indeed, analysts have said that “soft employment growth” in recent months makes an RBA rate cut “all but certain”.
Other economic indicators also play a role. For example, the RBA is more likely to cut rates if GDP growth slows (as it did around 2023–24) or consumer spending weakens due to high mortgage repayments. Conversely, strong commodity prices or wage surges could delay cuts. Global factors also matter: U.S. and Chinese economic conditions and geopolitical risks influence Australian rates indirectly via trade and capital flows.
3. Government and Regulatory Policies
Beyond the RBA, government policies and regulators can indirectly affect home loan rates. The federal government does not set interest rates, but its fiscal stance on tax or spending affects the economy. For instance, housing incentives like first-home buyer grants or stamp-duty concessions can boost demand and thus house prices, which may pressure rates if they spur inflation. The government’s large spending or tax changes can also influence inflation indirectly.
One direct impact comes from regulatory rules. APRA (Australian Prudential Regulation Authority) sets banking rules to promote stability. In late 2023, APRA confirmed that lenders must maintain a serviceability buffer of 3% on mortgage tests. This means banks must assume borrowers can handle rates 3 percentage points higher than the current rate. Such buffers dampen home loan growth by ensuring borrowers have cushions. APRA noted that the 3% buffer has helped borrowers cope with rate rises. If APRA were to tighten lending rules further, that could indirectly push up effective mortgage costs or reduce loan availability.
Conversely, government housing schemes (like the First Home Guarantee) aim to help buyers save a 5% deposit by reducing LMI requirements. While these schemes increase buying power, they don’t directly lower interest rates; in fact by boosting demand they might put mild upward pressure on prices. Overall, however, these schemes make it easier for new buyers to enter the market in a high-rate environment.
Key takeaway
The RBA’s cash rate is the dominant factor for mortgage rates. It’s set based on inflation, employment, and growth. Currently, inflation is moderating and unemployment has started to ease, so the RBA is likely to shift to cutting rates mid-2025. That said, global and domestic uncertainties mean no one knows exactly when or how much it will fall.
Certainly! Here’s a rewritten and expanded version of the section, incorporating the keyword “Will Home Loan Interest Rates Go Down”, using current Australian economic context and the clear, helpful tone typical of Hunter Galloway mortgage brokers:
How Interest Rates Affect Property Prices
For first-home buyers in Australia, understanding how interest rates influence property prices is crucial to making smart decisions. If home loan interest rates go down, what will that mean for housing affordability?
At a high level, the relationship between interest rates and property prices is relatively straightforward. When interest rates rise, borrowing becomes more expensive. Monthly repayments increase, and lenders reduce the maximum amount they’re willing to lend. This typically dampens buyer demand and puts downward pressure on house prices. On the flip side, when interest rates fall, borrowing becomes cheaper, loan affordability improves, and more buyers enter the market, pushing up demand and, with it, home prices.
This dynamic was clearly observed in recent years. Between 2022 and 2023, the Reserve Bank of Australia (RBA) aggressively hiked the cash rate to combat inflation. Mortgage rates followed, and we saw a broad cooling in the housing market. Major cities like Sydney and Melbourne experienced price corrections, and borrowing capacity fell by as much as 30% for some households. The RBA has highlighted how rate hikes reduce the present value of housing, making real estate less attractive to both investors and owner-occupiers.
However, the landscape is beginning to shift. In early 2025, the RBA made its first rate cut since the 2022 tightening cycle. Although modest, this move has already begun to influence market sentiment. With inflation trending down and wage growth steady, many economists now expect further rate reductions in late 2025 or early 2026.
Historical data shows that a 1% reduction in interest rates can increase house prices by 6–8% within a year, according to modelling from the Centre for Independent Studies. On a median home price of around $772,000, that translates to an increase of over $60,000. We saw this exact phenomenon after 2020, when rate cuts triggered one of the sharpest housing booms in Australian history.
However, affordability is a balancing act. While lower rates reduce monthly repayments and increase borrowing power, they often coincide with rising prices, making it harder for some first-home buyers to save a sufficient deposit. Additionally, lenders still apply a buffer rate (typically 3% above the actual rate) when assessing loan applications, which can limit how much buyers can borrow, even in a low-rate environment.
It’s also important to remember that interest rates are just one piece of the puzzle. Supply constraints, population growth, and government incentives all impact housing prices. For instance, grants and stamp duty concessions can inadvertently increase competition and push up prices if supply remains tight.
In short, while falling interest rates tend to boost housing prices, they also make home loans more affordable, creating both opportunities and risks for buyers.
Should I Refinance When Home Loan Interest Rates Go Down?
Refinancing means taking out a new home loan, typically with a different lender, to replace your current one. The new loan might have a lower rate, better terms, or allow you to access home equity. Many borrowers refinance at some point to get a better deal. Refinancing simply means changing your existing home loan for a new one, usually to save money or adjust your loan structure.
When To Refinance If Rates Drop
Refinancing can reduce your payments if market interest rates fall significantly below your current rate. For example, if you owe $500,000 and your rate drops from 6.34% to 5.99%, the monthly repayment falls by about $100. Over many years, that adds up.
A good time to refinance is after you have built up equity (say 20% of the home value) and interest rates have moved in your favour. Also, the end of a fixed term is often ideal: banks don’t charge a break fee, and you can shop around. In 2025, with fixed rates being cut, many fixed-rate borrowers will see their terms end and have higher standard rates to roll into. That’s a prime moment to refinance to a better rate.
Cost-Benefit of Refinancing
However, refinancing isn’t free. You must weigh the savings against the costs. Moneysmart advises borrowers to ensure the benefits outweigh the costs. Important costs include:
- Break fees: If you refinance a fixed-rate loan early, the lender charges a break cost (usually large if interest rates have fallen).
- Discharge/exit fee: Some lenders charge a fee to close your old loan.
- Application or establishment fee: Upfront fee for the new loan.
- Valuation fee: Cost to re-appraise your property.
- Lender’s Mortgage Insurance (LMI): If your equity is low, switching might require LMI again.
- Stamp duty: In a few states, refinancing a mortgage can attract stamp duty (check local rules).
You should gather quotes from at least two lenders. Moneysmart suggests using a mortgage switching calculator to see how long it takes to break even..
When to switch lenders: A common rule of thumb is to consider refinancing if you can lower your interest rate by at least 0.5–1.0 percentage point, and if you plan to stay in the loan long enough to recoup the costs (often 12–18 months). Also, monitor your existing loan: after a fixed term ends, your rate might jump a bit, so refinancing then can be wise. Refinancing in 2025 makes sense if:
- (a) fixed rates drop significantly or
- (b) discounts for new customers improve.
Note that if you haven’t shopped around in a few years, your rate may already be higher than current market averages, so even without big cuts, switching to a competitive offer can save money.
Read more: 7 Reasons to refinance in 2025
Read more: Are refinance fees tax-deductible?
First-Home Buyer Strategies In A Changing Rate Environment
Even though the answer to the question: Will home loan interest rates go down is most likely yes, we live in an era of market uncertainty, which requires strategy. Here are some tips and considerations:
Should you wait for rates to fall? It’s tempting to hold off buying, hoping mortgage rates drop. However, remember that falling rates often lead to higher home prices because cheaper borrowing increases demand. Remember that a 1% rate cut can boost house prices by roughly 6–8% over a year. If you wait, you may find homes more expensive, even if your rate is a bit lower. Many experts caution that policies aimed at making buying easier can also inflate prices by stimulating demand.
The practical advice is often not to wait indefinitely. If you find a home you can afford now, it could be worth buying rather than risking higher prices later. You can always refinance or fix part of the loan if rates drop after you buy.
Budget with a cushion: Given uncertainty, build a buffer into your budget. When calculating how much you can borrow, use an interest rate higher than the current level (e.g. add 2–3% to the current rate) to see if you can still afford the repayments. Include other costs such as stamp duty, council rates, and insurance. Make sure you have an emergency fund and an offset account if possible. If rates rise further than expected, a buffer helps keep you safe.
Consider a split loan: As noted in fixed vs variable, splitting your loan can hedge bets. For example, you might fix half the loan for 3–5 years and leave the other half variable. That way, you get some peace of mind (fixed portion) and flexibility (variable portion). The variable part allows you to benefit from offset accounts and future rate drops, while the fixed part protects you if rates continue to rise.
Lock in some features: If going variable, maximise any low-rate loan features such as offset accounts and ability to redraw. An offset account (which most variable loans offer) can save you interest if you put spare savings there.
Use government support schemes: Check if you qualify for the First Home Guarantee (5% deposit scheme), stamp duty waivers, or savings incentives. These won’t lower interest rates, but they can reduce upfront costs and deposit needs, making home ownership easier even at higher rates.
Get pre-approval and act fast: Mortgage pre-approval locks in a borrowing limit, which can be useful in fast-moving markets. If you see a suitable property at a reasonable price, having pre-approval means you can buy promptly. Waiting around for rates might cause you to miss opportunities.
Overall, stay flexible. Monitor rate announcements (RBA’s schedule) and market forecasts. If an interest rate cut is signalled, you might delay fixing rates until closer to the cut. But ensure you have alternative plans.
The main strategy: plan your purchase on current realistic rates, not hypothetical future ones.
For more detailed home-buying advice, see our First Home Buyer Guide, which covers budgeting, loan choices, and step-by-step planning for 2025.
Will Home Loan Interest Go Down Summary
- RBA Policy: The RBA sets the cash rate with inflation as its guide. In 2025, it is expected to gradually cut from the 4.10% level once inflation is safely in the 2–3% band. Each change flows through to home loan rates.
- Government Schemes: Initiatives like the First Home Guarantee make borrowing easier (by reducing deposit requirements or LMI costs) but do not directly change interest rates. In fact, by stimulating demand, such schemes could lead to higher prices.
- Regulation: APRA’s rules (such as the 3% serviceability buffer) affect how banks lend, indirectly influencing affordability. For now, APRA has kept buffers steady, meaning banks will continue stress-testing loans at +3% above the contract rate.
First-home buyers should therefore focus on the cash rate outlook and lender offerings, while leveraging any government help available. As the RBA revisits rates in late 2025, stay tuned for official announcements – they will directly determine whether “home loan interest rates go down.”
Home Loan Rates FAQ
How low will interest rates go in 2025 in Australia?
Most forecasts see the RBA cash rate falling into the mid-to-low 3% range by late 2025 (down from 4.10% now). For example, some banks predict 3.35% (and even as low as 2.85% by December 2025. Variable home loan rates would correspondingly ease to around 5–5.5% by year-end if these forecasts hold.
How long will high interest rates last in Australia?
“High” rates (above historical norms) likely persist through much of 2024 and into 2025. The RBA has signalled it will only cut once it’s confident inflation is under control. Currently, analysts expect the high-rate phase to end in the second half of 2025, with more cuts possibly in the latter half of the year.
How long until loan rates go down?
Given the forecasts above, borrowers may see lower loan rates in late 2025. Watch for RBA’s May 2025 meeting (or soon after); most economists fully expect an initial cut then. Bank rate cuts usually follow RBA cuts quickly, so loan rates would come down soon after. In short, about a year from now (mid-late 2025) seems likely for the start of rate relief.
What will the interest rates be at the end of 2026?
Bank forecasts generally show rates stabilising around the mid-3% range by 2026. For example, Westpac and CBA project roughly a 3.35% cash rate into late 2026. This implies variable mortgages will be around 5% by the end of 2026. (Of course, if inflation stays low, there could be further small cuts through 2026.)
What is the highest interest rate Australia has ever had?
The official RBA cash rate peaked at 17.5% in January 1990. Mortgage rates for home loans were similarly high then. This was decades before the 2000s, when even the highest rates were below 10%.
How high will interest rates be in 5 years?
Long-term forecasts are uncertain. Some projections (e.g. IMF, economic analysts) suggest that by the late 2020s, the cash rate could average around 3–4%, assuming inflation and wages stabilise. In other words, rates might settle back to more “neutral” levels similar to those seen in the 2000s. However, this depends on inflation returning to target and global conditions..
Next Steps And Getting Your Home Loan
Want to buy a house but still asking will home loan interest rates go down? The answer is don’t wait around hoping interest rates will drop further—timing the market can cost you valuable opportunities.
Our team at Hunter Galloway is here to help you buy a home in Australia. Unlike other mortgage brokers who are just one-person operations, we have an entire team of experts dedicated to helping make your home loan journey as simple as possible.
If you want to get started, please give us a call on 1300 088 065 or book a free assessment online to see how we can help.
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