September 9, 2010
Last week, while the nation absorbed the news that Labor will remain in government, the Reserve Bank of Australia (RBA) announced that the official cash rate would remain unchanged at 4.5 percent for the fourth consecutive month. However while this news is good for borrowers, mortgage holders, particularly first home buyers should be cautious of lenders increasing interest rates for home loans.
Don’t get too comfortable
RateCity CEO Damian Smith says borrowers often become too comfortable when there’s a pause to the official cash rate, with a “huge surge” in applications for home loans at RateCity, which recorded a 170 percent increase in July compared to June.
“While it’s great that more potential homeowners are back in the market,” Smith said, “it’s important that borrowers realise that lenders can – and many will – move their variable rates outside of the Reserve Bank’s cash rate movements.”
It was also reported that analysts from Credit Suisse and JP Morgan predict that the Commonwealth Bank is most likely to move their interest rates on mortgages first out of the major banks.
Smith said that a possible rate movement could be targeted at packaged home loans, where discounts of up to 0.7 percent are currently being offered. “We expect lenders to start reducing these discounts in the coming months,” he said. “By reducing these discounts, this will have the same impact for new borrowers as increasing interest rates on mortgages but it won’t be as obvious, which is why it’s so important to check out the market.”
Save on your mortgage by shopping around
So while lenders are threatening to lift their rates, there are still plenty of opportunities to save a bundle by simply shopping around. For instance, the benchmark basic variable rate, which is the average of the four major banks – ANZ, Commonwealth Bank, NAB and Westpac – is 6.78 percent. For a $300,000 loan, that would cost about $2078 per month.
Compared to RateCity’s top variable rate for a $300,000 mortgage, which is by State Custodians at 6.46 percent, monthly repayments would cost about $2018. Although this is only $60 per month less than the benchmark basic variable rate, after 25 years it could add up to $18,000 in interest saved.
Whether interest rates on mortgages sky rocket beyond the official cash rate movements, you can always be sure to make a decent saving by comparing mortgage lenders online. And with the likelihood of rates to lift further in the coming year or two, it means there will be more potential savings to be made.