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4 silver linings for borrowers in a high interest rate world


Costs of living are rising fast, interest rates are soaring. But it's not all doom and gloom.

Sponsored by Unloan. The first home loan with an increasing discount.
With Unloan, you don't just start with a low variable rate — you also receive an extra 0.01% p.a. discount every year for up to 30 years.

Even when economic times are tough, there are always opportunities. And this is definitely true even now, at a time when interest rates and the cost of living are rising very quickly.

Here are some of the positives:

1. Interest rates have risen, but they're still relatively low

There's no getting around that home loan interest rates have risen very fast this year. For borrowers or would-be borrowers, it's not good news.

The higher your interest rate, the more expensive your home loan becomes. But it's worth putting current rates in context. Interest rates are now back to where they were in 2016 and may rise a bit higher.

But this is still lower than rates have been at most times in recent history. You can still get a home loan with a rate under 4%. That's still a low rate.

There are plenty of lenders vying for your business and offering rates that are lower than the majority of their competitors. Unloan is an online lender with one of the market's more competitive variable loans. And it even gives you a 0.01% p.a. discount every year of the loan.

2. Now that rates have risen, you can plan accordingly

The speed of rate increases has definitely been a shock. However, if you're looking to get a home loan soon, you are in a slightly better position.

Buyers today can factor in higher interest rates and work out how much they can borrow with more clarity and greater certainty. It's an information advantage over anyone buying 6 months ago, who may have assumed rates were going to remain low for a while longer (if they thought about it at all).

Even people who already have home loans can use the current climate of rate rises to take stock and look for a better deal. Many lenders, while raising rates for current borrowers, have also started offering slightly cheaper deals to attract new borrowers. It really pays to review your loan and think about switching.

Some lenders such as Unloan offer competitive home loans aimed at refinancers in this situation. Not only does Unloan offer a competitive interest rate, it also offers the same rate for old and new customers. In other words, you're not likely to get stuck on a higher rate later.

3. Falling property prices represent a great opportunity for buyers

Another upside to rising interest rates is real estate prices. Now that rates are rising again, prices are starting to fall. This is entirely expected. When money is cheap to borrow, buyers can stretch their budgets further. Now they can't.

So far, prices have started to decline by modest amounts over the last few months in Sydney and Melbourne (and a few other capitals, but not all of them).

This is good news for buyers planning to enter the market soon. We might be moving back to a buyer's market again, which we haven't seen for a couple of years now. This means you could buy a home with a smaller loan amount and save a slightly smaller deposit.

Falling property prices aren't good news for people who already own homes. But again there's a potential silver lining. Homeowners looking to upgrade their homes in the same neighbourhood may actually benefit from falling prices. While your own home might not sell for the best price, you can pay less on your next property. And this means paying less stamp duty.

4. Most of us have more savings than we did before the pandemic

Part of the reason inflation is high now is because many of us are spending. This is because we've got the cash. Australians saved a lot of money during the early stages of the pandemic.

This is something RBA governor Philip Lowe observed during a recent speech on rate rises, noting that "Many households have also built up large financial buffers and the saving rate remains higher than it was before the pandemic."

This means that many of us are in a decent position to handle rising living costs and possibly even start putting our money to use as interest rates rise.

Rising interest rates might be bad news for borrowers, but there's a silver lining for savers. Interest rates on high interest savings accounts and term deposits are starting to rise. So there are opportunities to offset some rising living costs.

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