A benchmark interest rate is the term given to describe the average interest rate among Australia’s major four banks – ANZ, Commonwealth, NAB and Westpac. It is also the term commonly used to refer to the minimum interest rate investors will accept when investing in a non-Treasury security.
In the home loans market, however, the benchmark interest rate is a useful tool when comparing lenders and their mortgages. That’s because it provides a standard by which to measure other lender’s financial products.
Movements in the market
The benchmark interest rate also helps to determine rates across the broader home loans market, and similarly for credit cards, personal loans and the like. That’s because the major four banks typically hold around 80 percent of the Australian mortgage market and their decisions with regards to rate movements tend to be a catalyst for other lender’s decisions to move interest rates.
So if the Reserve Bank holds the cash rate steady for instance, but one or more of the major four banks increase their home loan interest rates – in turn lifting the benchmark interest rate – then it’s likely that other lenders will follow suit.
If rates increase as a result, borrowers may wish to consider refinancing to a low interest mortgage because by doing so they could save thousands of dollars over the life of the loan. Irrespective of rate movements borrowers would be wise to revisit their mortgage every year and compare it to what else is on the market, and of course using the benchmark interest rate as a guide.
How to choose a mortgage
Typically, the big four lenders provide competitive interest rates on their products, but you’ll almost always find cheaper options by comparing home loans online at websites such as RateCity. You can find some of the most competitive rates by:
- Visiting the compare home loans page at RateCity and searching for a mortgage to suit your circumstances
- Comparing fixed and variable rate home loans
- looking to the comparison rate to determine the real cost of the loan
- also comparing fees and features when weighing up home loan options, because they can really add up over time
- you can even visit RateCity’s Home Loan Guide for more information about finding the best home loan for your needs