The Reserve Bank of Australia’s official cash rate just passed a major milestone: Over two years unchanged at 1.5%. So it’s reasonable to assume that your home loan rate will stay steady also.

But that may not be the case. Liz Fowler, Head of Strategy at Aussie, says some lenders have raised their variable home loan rates.

Liz explains, “The Reserve Bank’s cash rate is one influencing factor for home loan rates. Other factors come into play too including competition between lenders, intervention by regulators, and money market funding costs.”

This last factor – the cost of home loan funding, is worth a closer look.

Banks use a variety of funds for home loans

The money that banks use to lend out as home loans comes from a variety of different sources. This can include savings that households have on deposit with the banks as well as funds sourced from other areas such as local and overseas money markets.

Over the last year, the cost of these funds has risen, and as a result in recent months some lenders have started to lift their variable home loan rates.

Not all rates are rising

Increased funding costs could explain why your home loan rate may rise. But it doesn’t explain why a number of lenders are offering discounted rates to new customers.

Liz says this boils down to competition, noting, “In a highly competitive mortgage market we have seen some lenders decrease interest rates on some products.”

What’s happening with fixed rates?

Fixed rates don’t always move in sync with variable rates, and Liz says there are some very compelling fixed rate deals available.

“Fixed rate home loans can offer certainty of repayments,” she says. “But they can come with restrictions such as limits on extra payments or fewer features like redraw.” Borrowers can also be hit with ‘break costs’ if a fixed rate loan is paid out early. The bottom line is that it’s important to weigh up the pros and cons of locking into a fixed rate.

Steps to take

On the plus side, variable home loan rates are still at record lows, and Liz believes there are ways for home owners to make the most of this. “By making extra repayments, or building savings in an offset account, it’s possible to build a buffer for your loan in case rates rise, and we are seeing trends of home owners doing just that.”

Want to check in on the health of your home loan? Contact your Aussie Broker today. This article was originally published in August 2018 and has been updated.