What number should your interest rate have in front of it?

IN BRIEFIt’s widely anticipated the RBA will raise the rate to 4.85 per cent, a fifth rise in 2026.Experts say it’s worth speaking with your bank, or shopping around for better options.

Homeowners could save big by negotiating or refinancing their mortgages, experts say, as the Reserve Bank of Australia (RBA) prepares to decide on its cash rate on Tuesday.

It’s widely anticipated the RBA will raise the rate from 4.60 per cent to 4.85 per cent. If it does, it will be the fifth rate rise of 2026, and sent interest rates to an 18-year high.

For those on variable interest rates, another hike would likely add 0.25 percentage points to their repayments, as the major banks have historically passed on the rate in full after RBA announcements.

But while a rate rise could increase mortgage pain for borrowers, it could also create an opportunity for people to negotiate their loan.

Sally Tindall is the head of data analytics at financial comparison site Canstar. She told SBS News that the best variable rate on offer was 5.89 per cent as of Tuesday morning.

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“It’s an important time to be talking to your bank,” she said.

“Any kind of relief that you can get on an individual basis from your bank can help alleviate some of the pressure that the RBA is applying on you.”

What is a good variable rate?

Mardy Chiah, an associate professor of finance at the University of Newcastle, told SBS News that a variable rate of around 6 per cent to 6.3 per cent for a maximum 80 per cent loan-to-value ratio (LVR) is competitive ahead of the RBA’s decision.

An 80 per cent LVR means you are borrowing 80 per cent of a property’s appraised value or purchase price, leaving you with a 20 per cent deposit or equity.

“If you’re paying 6.5 per cent or more, it’s worth shopping around or asking your bank for a better deal,” he said.

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Reducing your rate from 6.5 per cent to 6 per cent on a $500,000 mortgage could save you around $160 a month, or nearly $2,000 a year, assuming 30 years remaining, he explained.

Tindall said that the average variable rate sits at 6.49 per cent, so any loan at or under that figure is in the better half of loans.

A good home loan should also suit a borrower’s circumstances, experts say.

Someone who values certainty might prefer a fixed interest rate, which keeps repayments stable for the fixed term. Others might prefer a variable rate, which can offer greater flexibility and the potential to benefit when rates fall.

Having a clear understanding of what you are paying for and the features attached to your loan is the most important thing.

When should borrowers negotiate or refinance?

One of the biggest mistakes borrowers can make is assuming their existing lender will automatically offer them its most competitive rate.

Banks and lenders regularly compete for new customers, so existing borrowers can sometimes end up paying more than people taking out a new mortgage.

“The bottom line is that loyalty doesn’t always pay when it comes to mortgages,” Chiah said.

“Banks may offer better rates to attract new customers, so existing borrowers shouldn’t be afraid to ask for the same treatment.”

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It is also worth reviewing your loan when a fixed-rate period is about to expire, when your property has increased in value, or when you have paid down a substantial portion of your mortgage.

Barriers to refinancing

However, not everyone can refinance, as finding a new bank requires going through the institution’s approval process.

A new lender won’t necessarily approve a loan for someone who doesn’t pass the checks and tests it puts you through.

“If you don’t own 20 per cent of your home at today’s values, a lender may not take you on. Some borrowers may also fail to pass serviceability tests,” Tindall from Canstar explained.

Tindall described not being able to find a new bank as “mortgage prison” but said it’s still worth looking at refinancing, as it could put pressure on your current bank to come to the table.

What could variable rates be after a rate hike?

An interest rate of 4.85 per cent would see any variable rate starting with a 5 “dead and buried”, Tindall said.

The average variable rate would rise to 6.74 per cent in line with the RBA rise.

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But there would still be some good options available, she predicted.

“The lowest variable rate could still sit below 6.20 per cent, it’ll be interesting to see what the lower-cost lenders do in terms of their rates.”

Disclaimer: The information in this article is general in nature and is not intended as financial advice. You should consult with a licensed professional to make the decisions that are right for you.

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