Nila Sweeney

The cost of mortgages is expected to fall further after interest rates plummeted to a new multi-decade lows on Tuesday.

The closely-watched 90-day bill yields fell to 3.615% on Tuesday - the lowest since their inception in 1968, according to CommSec.

Craig James, chief economist with CommSec, said the new level is providing Australians with the "best borrowing conditions they have ever seen".

"The current level is well below the 4.25% cash rate, and yields are the lowest on offer since their inception in the late 1960s. Over the past month 90-day bank bill yields have slumped by three-quarters of a percent," said James.

James noted that three-year fixed lending rates have now fallen to a record (18-year) low of 6.14%, while variable rates stand at 6.85%. He added that there is the "very real prospect of rates falling another one percentage point in coming months to the lowest levels in over 40 years".

The overnight indexed swap market - a gauge of where financial market participants believe rates are headed - suggests that the Reserve Bank will cut the cash rate by half a percentage point on February 4 to 3.75%, according to James.

"If the expected rate cut is actually delivered, the cash rate will be at the lowest rate since November 1967, validating current money market interest rates. For first homebuyers in secure employment or with good job prospects, the time has probably never been better to be in the market for a home. The government is providing attractive grants, interest rates are super-low and vendors are motivated to sell."

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