ANZ hikes 4- and 5-year fixed home loans but cuts 2-year rates

ANZ hikes 4- and 5-year fixed home loans but cuts 2-year rates

ANZ has today hiked its 4- and 5- year rates by up to 0.45 per cent for owner-occupiers paying principal and interest.

However, the big four bank has also shaved its 2-year fixed rate by 0.10 per cent, taking it down to 1.94 per cent for owner-occupiers. Investor 2-year fixed rates were also cut by 0.15 per cent.

For the first time, ANZ now has an advertised mortgage rate under 2 per cent. By contrast CBA, Westpac and NAB have had rates under 2 per cent since November 2020.

ANZ changes – owner-occupiers paying principal and interest

Lowest rate Old rate New rate Change
2-year

2.04%

1.94%

-0.10%

4-year

2.24%

2.49%

0.25%

5-year

2.24%

2.69%

0.45%

Note: rates are for owner-occupiers paying principal and interest on a package home loan with a LVR of 80% or less.

Home loan market analysis – which rates are going up and down

Analysis of the RateCity.com.au database shows the majority of 3-, 4- and 5-year rate changes in the last month have been hikes.

However, when it comes to 1- and 2-year fixed rates, there are still more lenders cutting than hiking. The exception is the Westpac group which increased 2-year fixed rates earlier this week.

Fixed rate changes in the last month

  Lenders that have cut Lenders that have hiked Current lowest rate
1-year 10 5 1.67%
2-year 16 12 1.78%
3-year 7 13 1.79%
4-year 0 17 2.04%
5-year 0 18 2.24%

Source: RateCity, Data accurate as of 11.06.11. Note some lenders have hiked and cut multiple home loans rates, table is from 12 May to 11 June 2021.

RateCity.com.au research director, Sally Tindall, said: “for seven months ANZ was the only big four bank not to offer a home loan rate under 2 per cent. It has finally caved and cut.”

“The trimming of ANZ’s two-year fixed rate is likely to be about winning new business,” she said.

“The latest APRA monthly banking data shows ANZ’s home loan book retracted slightly in April at a time when new home lending was at a record high.

“While the bank shaved two-year rates, it has made sizeable hikes to four- and five-year fixed rates for owner-occupiers in response to the expected rise in the cost of funding over the next few years.

“When the RBA’s term funding facility wraps up at the end of this month banks will have to find cheap money elsewhere. We expect to see more fixed rate hikes following this, particularly for terms of three years and above,” she said.

Big four bank rates – how they compare

“This week’s changes from ANZ and Westpac bring the big four bank pack closer together.

“For months, Westpac had an extremely competitive two-year rate that would have been squeezing its profit margins, while ANZ’s two-year rate was noticeably higher than the other big banks.

“As a result of today’s cut, ANZ is now back in the game when it comes to two-year fixed rates,” she said.

Lowest big four bank owner-occupier home loan rates

  CBA Westpac ANZ NAB
1 year fixed

2.09%

1.99%

2.04%

2.09%

2 year fixed

1.94%

1.89%

1.94%

1.89%

3 year fixed

2.19%

1.98%

2.04%

1.98%

4 year fixed

2.24%

2.19%

2.49%

2.19%

5 year fixed

2.99%

2.49%

2.69%

2.49%

Variable

2.69%

2.19% for 2 yrs then 2.69%

2.72%

2.69%

Data accurate as of 11.06.11. Note: Westpac's rates are for a loan to value ratio of up to 70%.

Lowest rates on database

  Lender Rate
1 year fixed BCU

1.67%

2 year fixed BCU

1.78%

3 year fixed Credit Union SA

1.79%

4 year fixed Hume Bank

2.04%

5 year fixed UBank

2.24%

Variable Reduce Home Loans

1.77%

Data accurate as of 11.06.11. Note: Rates are for owner-occupiers paying principal and interest. Some LVR requirements apply.

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Fact Checked -

This article was reviewed by Senior Finance Writer Liz Seatter before it was published as part of RateCity's Fact Check process.

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Learn more about home loans

What are the different types of home loan interest rates?

A home loan interest rate is used to calculate how much you’ll pay the lender, usually annually, above the amount you borrow. It’s what the lenders charge you for them lending you money and will impact the total amount you’ll pay over the life of your home loan. 

Having understood what are home loan rates in general, here are the two types you usually have with a home loan:

Fixed rates

These interest rates remain constant for a specific period and are a good option if you’re a first-time buyer or if you’re looking for a fixed monthly repayment. One possible downside of a fixed rate is that it may be higher than a variable rate. Also, you don’t benefit from any lowering of interest rates in the market. On the flip side, if rates go up, your rate won’t change, possibly saving you money.

Variable rates

With variable interest rates, the lender can change them at any time. This change can be based on economic conditions or other reasons. Changes in interest rates could be beneficial if your monthly repayment decreases but can be a problem if it increases. Variable interest rates offer several other benefits often not available with fixed rate home loans like redraw and offset facilities and free extra repayments. 

What is a fixed home loan?

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Why does Westpac charge an early termination fee for home loans?

The Westpac home loan early termination fee or break cost is applicable if you have a fixed rate home loan and repay part of or the whole outstanding amount before the fixed period ends. If you’re switching between products before the fixed period ends, you’ll pay a switching break cost and an administrative fee. 

The Westpac home loan early termination fee may not apply if you repay an amount below the prepayment threshold. The prepayment threshold is the amount Westpac allows you to repay during the fixed period outside your regular repayments.

Westpac charges this fee because when you take out a home loan, the bank borrows the funds with wholesale rates available to banks and lenders. Westpac will then work out your interest rate based on you making regular repayments for a fixed period. If you repay before this period ends, the lender may incur a loss if there is any change in the wholesale rate of interest.

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

What is the difference between fixed, variable and split rates?

Fixed rate

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Variable rate

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

Split rates home loans

A split loan lets you fix a portion of your loan, and leave the remainder on a variable rate so you get a bet each way on fixed and variable rates. A split loan is a good option for someone who wants the peace of mind that regular repayments can provide but still wants to retain some of the additional features variable loans typically provide such as an offset account. Of course, with most things in life, split loans are still a trade-off. If the variable rate goes down, for example, the lower interest rates will only apply to the section that you didn’t fix.

What is the difference between a fixed rate and variable rate?

A variable rate can fluctuate over the life of a loan as determined by your lender. While the rate is broadly reflective of market conditions, including the Reserve Bank’s cash rate, it is by no means the sole determining factor in your bank’s decision-making process.

A fixed rate is one which is set for a period of time, regardless of market fluctuations. Fixed rates can be as short as one year or as long as 15 years however after this time it will revert to a variable rate, unless you negotiate with your bank to enter into another fixed term agreement

Variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts however fixed rates do offer customers a level of security by knowing exactly how much they need to set aside each month.

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

Who offers 40 year mortgages?

Home loans spanning 40 years are offered by select lenders, though the loan period is much longer than a standard 30-year home loan. You're more likely to find a maximum of 35 years, such as is the case with Teacher’s Mutual Bank

Currently, 40 year home loan lenders in Australia include AlphaBeta Money, BCU, G&C Mutual Bank, Pepper, and Sydney Mutual Bank.

Even though these lengthier loans 35 to 40 year loans do exist on the market, they are not overwhelmingly popular, as the extra interest you pay compared to a 30-year loan can be over $100,000 or more.

How does ANZ calculate early repayment costs?

If you have a fixed interest home loan, you’ll pay ANZ home loan early exit fees for partial or full repayment of the loan amount before the end of the fixed interest rate duration. These fees are also payable if you switch to another variable or fixed-rate loan.

The ANZ mortgage early exit fees can vary and you can get an estimate from the lender before you decide to prepay the loan. However, the exact early repayment cost can be determined when you prepay the loan.

The early exit fees are calculated after considering factors like the prepayment amount, the period left before the fixed-rate duration ends, and the change in the market rates since the beginning of the fixed-rate period. The early exit fees may not be charged if you’re paying off a smaller amount. You can check with ANZ to see how much you’ll have to pay.

Does the Home Loan Rate Promise apply to discounted interest rate offers, such as honeymoon rates?

No. Temporary discounts to home loan interest rates will expire after a limited time, so they aren’t valid for comparing home loans as part of the Home Loan Rate Promise.

However, if your home loan has been discounted from the lender’s standard rate on a permanent basis, you can check if we can find an even lower rate that could apply to you.

What is a comparison rate?

The comparison rate is a more inclusive way of comparing home loans that factors in not only on the interest rate but also the majority of upfront and ongoing charges that add to the total cost of a home loan.

The rate is calculated using an industry-wide formula based on a $150,000 loan over a 25-year period and includes things like revert rates after an introductory or fixed rate period, application fees and monthly account keeping fees.

In Australia, all lenders are required by law to publish the comparison rate alongside their advertised rate so people can compare products easily.

What is a honeymoon rate and honeymoon period?

Also known as the ‘introductory rate’ or ‘bait rate’, a honeymoon rate is a special low interest rate applied to loans for an initial period to attract more borrowers. The honeymoon period when this lower rate applies usually varies from six months to one year. The rate can be fixed, capped or variable for the first 12 months of the loan. At the end of the term, the loan reverts to the standard variable rate.

What is a variable home loan?

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.