Home lending has been the talk of the town in 2025.
Between shifting interest rates, the rising cost of living, and constant headlines about refinancing, it’s no wonder Aussie borrowers are full of questions. Whether you’re a first-home buyer, a seasoned investor, or just looking to get ahead on your mortgage, understanding what’s happening in the lending space can help you make smarter decisions.
In this article, we unpack the 5 burning questions every Aussie borrower is asking right now, and what the answers could mean for your financial future.
- Will interest rates continue to fall in 2025?
- What factors affect home loan interest rates?
- Is now a good time to refinance?
- What’s the difference between fixed and variable rates in today’s market?
- Will APRA reduce the serviceability buffer?
Question: Will interest rates continue to fall in 2025?
Why it’s trending: Rate cuts are expected, with major banks forecasting the cash rate to drop to 3.1% by year-end
So far we’ve seen 3 cuts already this year, with the most recent one on 12 August lowering the RBA cash rate to 3.6%. While borrowers would have welcomed the cut, pre-retirees are banking on a steady rate to improve investment earnings. Most banks and other non-conforming lenders immediately announced an imminent rate drop in their products, albeit making the new rate effective at different times. Why they need 2 – 3 weeks before actioning the new rate is anyone’s guess.
The major banks in-house economists have determined that it’s very likely that there will be more rate cuts in the next 6 – 10 months. The initial forecast of 3.1% by year-end has been pushed out to early 2026, but the key driving factors to any future rate cuts will be whether inflation continues to slow down, and unemployment rising. Interestingly, another factor that may influence RBA decisioning is borrower behaviour. In the second quarter of 2025, following the second rate cut announcement, over 100,000 mortgages were refinanced. This indicates households are potentially feeling stressed about their mortgage repayments and looking for better lending outcomes/deals.
If you find it difficult to get a good review of your mortgage interest rate with your current lender consider a refinance – there are still some refinance cash back offers out there, and you could benefit from significantly reduced monthly repayments to unlock hidden savings.
Question: What factors affect home loan interest rates?
Why it’s trending: Borrowers are craving clarity around what decisions and policies impact their repayments.
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Inflation has been ‘the’ hot topic for the better part of the last 12 – 18 months. Much media attention has been placed on the RBA to acknowledge the cost of living pressures being experience by many households in Australia. However, the RBA’s main job is to keep inflation in the 2% - 3% range. So in short: lower inflation = lower rates = potential repayments relief.
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Interest rates offered to new lenders and existing loans are now almost identical. The gap is now as little as 0.04% indicating that lenders are under pressure to offer better deals and customers are more willing to shop around to get a more competitive rate.
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While most banks pass on the full rate cut quickly, it’s important to remember that they’re not obligated to do so. At the moment there is a lot of pressure on banks to pass on the full rate cut quickly, but historically we have seen banks not pass on the full rate cut, or not passing on a rate cut at all in some instances, and even delaying the implementation of the new rates. This can be a result of the way they obtain funding for their home loan channel from local and international markets.
Question: Is now a good time to refinance?
Why it’s trending: With rates poised to drop further, many are exploring refinancing to reduce monthly repayments.
It’s always a good time to refinance – if this meets your financial objectives. Every rate cut is a chance to get ahead, and your home loan should never be a ‘set-and-forget’ exercise. A rate drop from the RBA is good news, but it’s only part of the story; so have a chat with your lender and compare your current rate to see where you could save on your monthly repayment. For example:
For a $500,000 loan the recent rate cut could save $226 per month, and for a $1million loan you could save up to $453 per month. These monthly repayment savings could shave years off the loan term, unlock equity earlier for future investments, or simply improve your monthly cash flow.
Your bank won’t proactively call you to discuss a better rate…..The overwhelming sentiment is: Don’t wait for your bank to play nice – negotiate or refinance. As mentioned previously, almost 100,000 loans were refinanced to a different lender in the June quarter, which translates to around 1,084 loan every day!
Question: What’s the difference between fixed and variable rates in today’s market?
Why it’s trending: Borrowers are weighing stability vs. flexibility as rates shift.
ICYMI – fixed rates give you a guaranteed rate for a set term (1 – 5 years) and easier budgeting with no risk of repayment increases. While in the fixed interest period you are ordinarily restricted to maximum additional repayments so the lender retains the interest earnings during the term, and there are also early payment penalties. Whereas with variable rates you can make unlimited additional repayments, no early repayment penalties, and you benefit from any reduction in the interest rate; however, you also pay increased repayments if the rate goes up.
Currently, lenders are strategically manipulating their fixed rates to offer options for clients that want certainty in their repayments. The fixed rates for 1 and 2 year terms are seeing sharper drops to give a competitive edge for lenders to entice clients to lock their loan with them and avoid refinancing. There could be significant benefits to clients on fixed rates that have a difference greater than 0.5% with the variable rate, since they will possibly see through 2 RBA rate drops before the variable rate is better than the fixed rate, and enjoy the savings. Some borrowers consider splitting their loan to have a variable portion as well as a fixed portion to give them the best of both worlds – flexibility with certainty.
Question: Will APRA reduce the serviceability buffer?
Why it’s trending: A potential drop from 3% could increase borrowing capacity, especially for first-home buyers.
So what is the APRA serviceability buffer? Short for Australian Prudential Regulation Authority, APRA requires banks to test loan calculations with a 3% buffer. If the loan rate is 6%, the bank tests whether you could still afford repayments at 9%. By doing this it protects borrowers from future rate hikes and potential spikes in unemployment to make sure you can still make repayments if circumstances like this change. On the one hand, it’s comforting to know that you should be able to afford increases to the variable rate, but on the other hand, some are questioning if 3% is too high.
A reduction in the buffer (say, from 3% to 2%) would increase borrowing power by potentially 5 – 10%, depending on income and expenses. For first home owners this could mean access to better properties, or finally qualifying for the loan. Next time you think you can afford the repayments, but the bank says no – it could be the buffer is to blame! At this stage, APRA have indicated no interest in reducing the buffer, although they have undertaken to review it.
With major banks predicting further rate cuts, and the potential for better borrowing capacity, now could be an opportune time for you to review your existing mortgage. There are several refinance cash back loans still available for eligible borrowers, to help unlock lower monthly repayments, and untapped savings. A small change now could make a big difference to your overall financial circumstances. Take control of your financial future and explore refinancing or negotiate a better rate today.
