Home loan rate battle, how low can they go?



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Spring is notorious for being a busy time for house hunters and therefore home loan applicants. So it’s little wonder that the banks are competing heavily for mortgage business at the moment.

The major four are all offering rate discounts to new customers who sign up for a home loan package, with ANZ offering up to 1 percent off its Breakfree home loan package (7.8 percent), and NAB slashing up to 0.7 percent of its Tailored Home Loan (7.67 percent).

However, Westpac and Commonwealth Bank have ramped up the home loan battle this month.

Westpac is enticing new home loan customers with a $1000 ‘cash back’ carrot to sign up to its Premier Advantage Package (7.86 percent) for a mortgage over $250,000 this month. That’s on top of a 0.8 percent package discount.

The Commonwealth Bank has added fire to the heat by introducing a guarantee that it will beat any advertised home loan rate from NAB, ANZ and Westpac.

The offer is valid for applications completed by October 31. Your new borrowings will also need to amount to $100,000 or more, with an additional 10 percent deposit.

It’s not just the big banks that are offering incentives to switch; many other institutions are also offering incentives and prizes. For instance, Greater Building Society is offering rewards points redeemable for holidays at specific destinations and State Custodians is offering a competition to win an iPad. This kind of marketing is widespread at the moment.

No doubt those looking for their first home loan will be swayed by these offers. But for many borrowers the best advice when home loan shopping is to find a low ongoing rate option with the features to suit your circumstances.

How discounts impact the hip pocket

As the bank with the largest share of outstanding home loans in Australia (27 percent), CBA already boasts an impressive record when it comes to winning business.

But if we consider the mentality of current home loan owners, how many will leave their bank for only a few basis points of difference?

For a $250,000 loan at 7.5 percent paid over 25 years, a 0.1 percent discount would save you $16 a month in repayments, and $3870 in interest over the life of your loan.

A 0.5 percent discount will save you $80 a month, and $24,519 in interest. For the price of a car or an extra few bags of groceries per month, many Australians may be reaching the limits of their loyalty.

If you’re willing to jump ship, test the waters first by looking at the range of interest rates you can expect. As a rare occurrence, many lenders are advertising cheaper fixed rate mortgages at the moment. Just consult your financial adviser for the best strategy, and follow the rate battle to lower rates and more savings for you and your household.

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