How one decision saved me at least $50k on my mortgage

Don’t hate me, but fixing my home loan interest rate saved me at least $50,000. Here’s why I won’t be doing it again.

In March 2021, I think I made the best decision of my life.

It wasn’t getting married. It wasn’t quitting my job and backpacking around Europe. It wasn’t even giving up alcohol for a month — although I did feel surprisingly clear headed.

No, the best decision I ever made was to fix my home loan at 1.98 per cent for four years when I bought my first property.

News Corp journalist Elizabeth Tilley inside one of Brisbane’s finest homes, when it was up for sale. Picture: Peter Walli.s

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The official cash rate was just 0.1 per cent at the time — the lowest on record, and I knew it couldn’t get much lower, so the obvious decision in my opinion was to fix it.

Even my broker wasn’t sure I should fix all of the loan, but under 2 per cent? I mean, it doesn’t get much better than that.

Plus, I’ve never been a risk taker, so the certainty of a fixed loan suited me just fine.

The variable rate at the time was about 4.5 per cent.

RBA Governor, Michele Bullock, during a press conference following the central bank’s last meeting. Picture: Nikki Short.

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The cash rate didn’t start going up until May 2022, then again in June 2022, then July 2022, and the rest is history.

Now, don’t hate me, but that means I’ve been paying only $400 a week in mortgage repayments for four years and never having to worry about that increasing.

I reckon, with rates having gone up 13 times since, I’ve easily saved about $50,000.

But, that’s all about to change.

People walk past a real estate agent's window in Melbourne. Photo: William West.

Next month, my fixed-rate term comes to a sorry end and my repayments will increase by about $1000 a month.

That’s going to hurt.

I’m in the middle of discussions with my broker about whether to stay with the bank I’m with and cop a variable rate of 6.44 per cent (paying loyalty tax), or refinance with another bank and try and negotiate a better rate.

Building costs and the cost of servicing a mortgage are major issues. Photo: William West.

Hopefully, it will be just in time to benefit from this year’s three or four predicted rate cuts.

I won’t be fixing again, because rates seem to be on the way down — and they still have a long way down to go.

Although I’ll be refinancing to a much higher variable interest rate than the fixed rate I was lucky to be on for four years, I’m hoping my mortgage repayments will start to go down with interest rates from now on.

The average variable interest rate, according to Rate City, is now 6.33 per cent.

After more than a year of the Reserve Bank keeping the official cash rate on hold at 4.35 per cent, forecasts are for at least one 0.25 of a percentage point cut in 2025 — most likely on February 18.

The major banks are pricing in a 90 per cent chance of an interest rate cut on February 18. Picture: Jeremy Piper.

Commonwealth Bank, ANZ and Westpac economists are now all expecting a 25 basis point cut at the February meeting, which would take the cash rate to 4.1 per cent.

As for financial markets, market pricing for a February rate cut increased from around 80 per cent before the December quarter inflation figures, to more than 90 per cent after their release.

If the banks pass on those interest rate cuts, borrowers like me can elect to reduce our repayments.

According to RateCity, a borrower with a $500,000 home loan today would see their monthly repayments drop by $76, if the RBA cut the cash rate by 25 basis points.

That’s based on an owner-occupier making principal and interest repayments at the average existing variable rate of 6.33 per cent.

The Reserve Bank of Australia is expected to cut interest rates by a quarter of a per cent on February 18. Photographer: David Gray.

If there were two cuts, repayments would fall by $151 a month.

For a borrower with a $1 million home loan, one cut would save them $153 a month, while two cuts would save them $303.

It might not sound like a lot, but every little bit counts.

While I could have been out splashing my savings on extravagant items, I have actually been putting money away knowing this time would come.

It just shows it really does pay to do your research, get a good broker, always compare what rates are out there, and know how much risk you’re prepared to take.

To be honest, my situation may be more to do with good timing than a good decision, but that’s just semantics!

Originally published as How one decision saved me at least $50k on my mortgage