Your financial wellbeing guide to interest rates

What are interest rates?

Interest is the cost of borrowing money. This cost is presented as a percentage of the total amount you borrow. Interest rates can be fixed or variable.

All Keystart loans have a variable interest rate, which means that the interest rate will go up and down over time.

Rates will fluctuate over the life of your loan

Throughout your Keystart home loan, interest rates are likely to change several times.

If interest rates decrease, your minimum monthly repayment is likely to go down.Similarly, when interest rates increase, your minimum monthly repayments will go up in line with the rise in interest. It's a good idea to plan ahead for this if you can.

How are interest rates calculated?

The process starts with the Reserve Bank of Australia (RBA). The RBA determines the national cash rate. This is the interest rate it charges commercial banks for loans. The cash rate is different from lenders' home loan or personal loan rates. Lenders consider the cash rate when setting interest rates for all financial products including savings accounts, personal loans and home loans.

The RBA's decision on the cash rate is based on a number of factors, such as employment, inflation, consumer and business confidence and the housing market around the country.

How the RBA rates affect home loan rates

When the RBA announces a change in the cash rate, either up or down, financial institutions may decide to increase or decrease their rates too. This is not the only factor affecting rate decisions. Banks sometimes change rates at different times. They may decide not to change rates at all.

RBA's cash rate decision each month is based on several factors, in particular inflation, employment, and consumer confidence around the country.

You can read RBA's latest announcements on its website: https://www.rba.gov.au/media-releases.

We understand that the changes in interest rates can have a significant impact on many homeowners. You may find it worth looking at a longer view of where interest rates have been over time.

How we set our interest rates at Keystart

Given the low deposit nature of the lending we provide, Keystart has an interest rate policy that enables us to manage our lending risk responsibly whilst remaining focused on our vision of making the dream of affordable home ownership a reality for more people.

We offer home loans with lower entry costs, including a low deposit and no lender's mortgage insurance. While you might see home loans with a lower interest rate, those loans often require a much larger deposit.

Our interest rate policy is to set our rates based on the movements of the Reserve Bank of Australia’s (RBA’s) official cash rate.

Remember, we encourage you to transition to another lender as soon as you can do so. There may be lots of good reasons for this. You might be able to negotiate a lower interest rate with your new lender, or you could have your new loan packaged together with other financial services products to get a better deal. Our app will help you track your progress so you'll know when you're ready to refinance with another lender. 

Timing of rate changes

A change in our interest rate is influenced by movements in the RBA's cash rate. 

We'll keep you updated

Once a change to Keystart's interest rate has been approved, we'll be in touch to let you know the new rate and any change in your payment amount.

Effect on your minimum payment

In order for you to pay off your home loan over your loan term (for many of our customers the loan term is 30 years), you have a minimum monthly repayment amount that you need to pay every month. This payment amount is based on the current interest rate. 

If interest rates go up, that minimum amount goes up, if the rates go down, the minimum amount goes down. 

The minimum amount is just that – it's the minimum you'll need to pay to pay off your home loan over your remaining loan term. That doesn't mean you can't pay more than the minimum. Making payments beyond the minimum amount will help build equity and help you pay off your home loan sooner.

How much more will your payment be?

If you currently pay more than your minimum monthly amount, your monthly or fortnightly payment may cover your minimum monthly repayment amount increase. You can check what your minimum monthly repayment amount is in the Keystart app under the My loan section.

While none of us can predict what the future holds, you can still prepare yourself for some scenarios now. You can use our repayment calculator to see what impact an increase in rates will have on your minimum payment. Enter your current loan amount and then you can enter a range of rates to see what your payment amounts could be.

Interest rates will change over the life of your loan

Your minimum monthly repayment amount is based on the amount you are borrowing plus the current interest rate charged on your loan. This amount can go up or down in line with a change in interest rates.

In the case where interest rates increase, your minimum monthly repayment amount is likely to increase in line with this. It’s a good idea to prepare for the possibility of an interest rate increase.

Did you know, when you applied for your home loan, we assessed your application based on a higher interest rate? We do this to make sure you can still comfortably afford your home loan if rates go up, based on your situation when you applied for your loan. While changing to accommodate a higher payment may take some adjustment, you may find that the change is not as drastic as you initially thought. 

Test different scenarios

You can use our repayment calculator to check the potential impact of a rate increase on your home loan. Enter your current loan amount and you can enter a range of rates to check what impact it may have on your minimum payments.

Try out our repayment calculator

Can you increase your payments

Paying more than your minimum payment amount will allow you to more comfortably adjust to an interest rate increase. This also gives you time to get used to higher payments, while also getting ahead on your loan.

Check your expenses

Now may be a good time to take a look at your monthly budget and see if there are any unnecessary expenses that you can cut back on. Consider all those streaming services – can you cut back there or maybe do some more menu planning and avoid expensive food delivery?

It's good to review your finances every so often to make sure everything is prioritised and if there is room to save on expenses. You might find it helpful to try our confidential financial wellbeing service. 

Find out more about free financial coaching

“For some of the Keystart customers I speak to, setting up a budget has been a revelation. When listing all their expenses, they have found they’re in a better financial position than they thought.  With some adjustments, they can cover an increase in payments and even save up for an emergency fund and put money aside for fun things like birthdays.”
Dee O’Callaghan, Financial Wellbeing Collective.

Consider your loan payment frequency

If you’re currently paying your home loan repayments on a monthly cycle, consider changing to weekly or fortnightly. This small change can save you a lot of money on interest in the long term and help you get ahead of your home loan.

You can make this simple change in our app and see how much you can save off your loan.

Taking control can feel great

Remember, you're in control. It may take time to adjust your finances, but acting now to be prepared for a change in interest rates will make for an easier transition in the future.

“You can develop awareness of your money mindset and learn how to make informed choices to meet your financial goals. But as we say to customers, beware, the excitement of being in control of your financial future becomes more addictive, and definitely more beneficial than online spending sprees!”
Dee O’Callaghan, Financial Wellbeing Collective

When you started thinking about owning your own home, you decided to go with Keystart with our low deposit requirement – and you probably didn't want to pay lender's mortgage insurance. Well done – that decision got you started on your home ownership journey. 

Like many big decisions in life, your home loan finance needs a wellbeing check-in now and then. You might find it helpful to track how your home loan is going – and to make a plan for the next five to ten years.

Use our app to track your progress towards refinancing

We know this sounds strange, but as a transitional lender, we're happy for you to move on to a new lender when you're ready to do so. We're here to help you get started. Then, when you're ready, we encourage our customers to leave us.  Our app will track your progress and let you know when you might want to consider refinancing. 

Taking control of your home loan can feel good, whether you're working on building your equity or considering refinancing - making a plan can clarify where you're going.

What is equity (…and why it needs to be part of your plan)

Equity is the difference between the value of your home and the amount you owe on it. 

For example, Brett had his home valued and it is currently worth $400,000. He has had his home loan for ten years and has an amount owing of $300,000. Brett's equity is $100,000.

If you have enough equity in your home, you may be able to refinance, and you might be able to get lower interest rates and other benefits with a new lender.  You can track your equity in our app.

Set your timeframe

It may take several years to build up enough equity to refinance. Making a plan to work towards a realistic timeframe puts you in control of your home loan. 

How lenders look at equity

Equity becomes very important if you are considering refinancing your loan. The amount of equity you have in your home will affect your options and which loan products may be available to you. 

Refinancing options

If you want to refinance to another lender, you'll need to pick the lender and loan product that is right for you. We can't help you select another lender but there is a lot of help out there. Did you know some lenders may have refinancing offers available for Keystart customers? You may find it helpful to contact a broker to look into your options. 

We've put together a guide to refinancing to support you through the process.

If you're thinking about your Keystart interest rate, you've probably looked around at other interest rates at other lenders. Interest rates vary a lot between lenders and between different home loan products. You may see an advertised rate below what you are paying with Keystart, but like any big change, it's important to do some research so you can weigh up your options carefully.

It may be that a lower rate is only available for those with a higher deposit, or may only apply for an introductory period.  

Fixed vs variable rates

The interest rate on a variable rate home loan can change at any time, either up or down. The rate can be influenced by changes in the Reserve Bank of Australia's official cash rate or the lender's costs. Market circumstances and competition between lenders can also lead to interest rate changes. 

Keystart home loans use a variable interest rate.

Lenders may also offer fixed-rate home loans. This rate allows you to lock in an interest rate on your loan, typically for one to five years. Fixed rates can protect against interest rate rises but also means you won't benefit from falling interest rates.

Is it an introductory rate?

When comparing rates, be sure to ask if the rate has a set period, often referred to as an introductory or honeymoon rate.

For example, it may be that a rate advertised runs for the first twelve months of the loan but then reverts to the lender's standard variable rate.

Consider costs 

Consider all the costs associated with setting up a new loan with another lender, including things like lender's mortgage insurance, fees and charges, and how much equity you need to have upfront to qualify for a loan with a new lender. All lenders will be able to provide you with the fees and charges associated with a home loan. You will need to weigh up what works best for you in your own situation.

What's the maximum loan to value (LVR)

Some rates are only available if you have a loan to value ratio above a certain percentage. 80% maximum LVR is quite common with home loan lenders, meaning the maximum amount the loan can be is set to 80% of the value of the home. In our app, you'll see this as the 20% equity goal. When you reach 20% equity, your LVR is estimated at 80%. 

Let's look at an example:

Iif Jude's home is worth $395,000. Bank X is offering a low rate based on a maximum 80% LVR. The maximum amount Bank X will lend Jude is 80% of $395,000, which is $316,000.  If Jude wanted to refinance with Bank X, her loan balance would need to be $316,000 or less to qualify for the advertised home loan.  

Compare key facts sheets

To help consumers compare different lenders, all Australian lenders are required to provide key facts sheets, which include comparison rates on certain financial products including home loans. A comparison rate is a rate per annum based on certain fees and charges together with the interest rate as outlined in the Consumer Credit Code (Code). This rate allows you to compare 'apples with apples' - that is a better way to fairly compare loan products. A key facts sheet is a very handy tool when comparing rates and home loans. 

You can view Keystart's key facts sheets under each of our loan products. View our loan products and key facts sheets for each home loan product here. 

Benefits beyond the loan

Some lenders may be able to offer other benefits with a home loan, almost as a package. This may include credit cards, insurance discounts and offset accounts. Be sure to check all the conditions on these benefits and weigh up against your requirements.

Check carefully if any benefits come with a limited time, for example, a new credit card with a lower rate that may be offered for the first twelve months only.

We're not the lowest rate on the market

Our interest rates policy enables us to manage our lending risk responsibly whilst remaining focused on our vision of helping more Western Australians start their home ownership journey sooner. We help you get started with our low entry cost home loans. We don't offer the lowest rate on the market. 

Thinking of leaving us?

If you want to refinance to another lender, you'll need to pick the lender and loan product that is right for you. We can't help you select another lender but there is a lot of help out there. Some lenders may have refinancing offers available for Keystart customers. You may find it helpful to contact a broker to look into your options. 

We've put together a guide to refinancing to support you through the process.