ANZ shocks by not passing on full RBA rate cut

ANZ shocks by not passing on full RBA rate cut

The RBA has finally taken the plunge, cutting the cash rate to a new low of 1.25 per cent. If lenders pass the rate cut on in full, the average mortgage holder will save around $58 a month or $700 a year.

ANZ has shocked the market by not passing on the full cut, instead opting to give their variable home loan customers a 0.18 per cent cut.

In contrast, Athena, RACQ and Reduce Home Loans have announced they’ll be passing on the full 0.25 per cent cut.

Keep across the changes with RateCity’s live list of who is cutting, by how much and when: https://www.ratecity.com.au/rba-cash-rate.

This takes the lowest ongoing variable rate to 3.19 per cent, from Reduce.

Sally Tindall, research director at RateCity.com.au, said all lenders needed to step up and pass on the cut in full.

“ANZ’s decision to not pass on today’s cut in full is a huge disappointment and now all eyes will on the remaining Big Banks to see if they can go one better,” she said.

“Reduce, RACQ and Athena were the first out of the starting blocks. This now puts immediate pressure on other lenders to pass the full cut on to both their new and existing customers.

“This rate cut will provide some much-needed relief to mortgage holders feeling the pinch,” she said.

For the average home owner, today’s cut gives them up to $58 extra to put towards the electricity bills, the groceries or the never-ending cost of raising kids,” she said.

“Importantly, for many families, it will also be a chance for to get ahead on their loan,” she said.

“Australia’s household debt to disposable income ratio remains at a record high at 189.6 per cent and continues to be a pressing concern for the RBA,” said Sally Tindall.

RateCity.com.au analysis shows if the average mortgage holder put a rate cut of $58 a month back into their loan, they could save up to $18,523 in interest over 30 years and shave up to 1 year, 7 months off their mortgage.

Impact of 0.25% rate cut on average home loan rates

 

Loan Amount Old Rate New Rate Monthly Difference Annual Difference
$300,000 4.31% 4.06% -$44 -$525
$400,000 4.31% 4.06% -$58 -$700
$500,000 4.31% 4.06% -$73 -$875
$750,000 4.31% 4.06% -$109 -$1,312
$1 million 4.31% 4.06% -$146 -$1,749

 

Source: RateCity.com.au

* Based on RateCity.com.au’s average variable rate of 4.31% for owner occupiers paying principal and interest over 30 years.

Who’s moved?

LIVE UPDATES: https://www.ratecity.com.au/rba-cash-rate.

 

Lender Cuts Date effective New lowest variable rate
ANZ 0.18% 14 June 3.63%
Reduce Home loans Up to 0.25% Immediately 3.19%
Athena 0.25% Immediately 3.34%
RACQ 0.25% Next week 3.44%

 

Source: RateCity.com.au

How to ensure you get a rate cut

  1. Call your bank and ask them whether they are cutting your rate, by how much and when.
  2. Check what other lenders are offering. Even if your bank is passing on the cut, you might find a better deal from a competitor.
  3. If your bank doesn’t pass on the cut in full, or you discover you’re paying too much, consider switching. The beauty of a variable home loan rate is that you’re well within your right to take your business elsewhere.

How to put a rate cut back into your home loan

  1. Find out if your bank is passing on the rate cut, and by how much.
  2. Work out what your new monthly repayments will be and what this means for your budget.
  3. If you decide to put that money back into your mortgage, call your lender up and ask them to keep your monthly repayments the same. 

Note: the average mortgage holder is an owner occupier paying principal and interest with a $400K mortgage on an average rate of 4.31 per cent.

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Learn more about home loans

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.

How much of the RBA rate cut do lenders pass on to borrowers?

When the Reserve Bank of Australia cuts its official cash rate, there is no guarantee lenders will then pass that cut on to lenders by way of lower interest rates. 

Sometimes lenders pass on the cut in full, sometimes they partially pass on the cut, sometimes they don’t at all. When they don’t, they often defend the decision by saying they need to balance the needs of their shareholders with the needs of their borrowers. 

As the attached graph shows, more recent cuts have seen less lenders passing on the full RBA interest rate cut; the average lender was more likely to pass on about two-thirds of the 25 basis points cut to its borrowers.  image002

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.

What is a standard variable rate (SVR)?

The standard variable rate (SVR) is the interest rate a lender applies to their standard home loan. It is a variable interest rate which is normally used as a benchmark from which they price their other variable rate home loan products.

A standard variable rate home loan typically includes most, if not all the features the lender has on offer, such as an offset account, but it often comes with a higher interest rate attached than their most ‘basic’ product on offer (usually referred to as their basic variable rate mortgage).

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 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 average annual percentage rate?

Also known as the comparison rate, or sometimes the ‘true rate’ of a loan, the average annual percentage rate (AAPR) is used to indicate the overall cost of a loan after considering all the fees, charges and other factors, such as introductory offers and honeymoon rates.

The AAPR is calculated based on a standardised loan amount and loan term, and doesn’t include any extra non-standard charges.

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 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.

How much are repayments on a $250K mortgage?

The exact repayment amount for a $250,000 mortgage will be determined by several factors including your deposit size, interest rate and the type of loan. It is best to use a mortgage calculator to determine your actual repayment size.

For example, the monthly repayments on a $250,000 loan with a 5 per cent interest rate over 30 years will be $1342. For a loan of $300,000 on the same rate and loan term, the monthly repayments will be $1610 and for a $500,000 loan, the monthly repayments will be $2684.

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.

Does Real Time Ratings' work for people who already have a home loan?

Yes. If you already have a mortgage you can use Real Time RatingsTM to compare your loan against the rest of the market. And if your rate changes, you can come back and check whether your loan is still competitive. If it isn’t, you’ll get the ammunition you need to negotiate a rate cut with your lender, or the resources to help you switch to a better lender.

Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out.