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

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

How is interest charged on a reverse mortgage from IMB Bank?

An IMB Bank reverse mortgage allows you to borrow against your home equity. You can draw down the loan amount as a lump sum, regular income stream, line of credit or a combination. The interest can either be fixed or variable. To understand the current rates, you can check the lender’s website.

No repayments are required as long as you live in the home. If you sell it or move to a senior living facility, the loan must be repaid in full. In some cases, this can also happen after you have died. Generally, the interest rates for reverse mortgages are higher than regular mortgage loans.

The interest is added to the loan amount and it is compounded. It means you’ll pay interest on the interest you accrue. Therefore, the longer you have the loan, the higher is the interest and the amount you’ll have to repay.

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

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. 

How to use the ME Bank reverse mortgage calculator?

You can access the equity in your home to help you fund your needs during your senior years. A ME Bank reverse mortgage allows you to tap into the equity you’ve built up in your home while you continue living in your house. You can also use the funds to pay for your move to a retirement home and repay the loan when you sell the property.

Generally, if you’re 60 years old, you can borrow up to 15 per cent of the property value. If you are older than 75 years, the amount you can access increases to up to 30 per cent. You can use a reverse mortgage calculator to know how much you can borrow.

To take out a ME Bank reverse mortgage, you’ll need to provide information like your age, type of property – house or an apartment, postcode, and the estimated market value of the property. The loan to value ratio (LVR) is calculated based on your age and the property’s value.

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.

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

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.

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 the Home Loan Rate Promise?

The Home Loan Rate Promise is RateCity putting its money where its mouth is. We believe that too many Australians are paying too much for their home loans. We’re so confident we can help Aussies save money, if we can’t beat your current rate, we’ll give you a $100 gift card.*

There are two reasons it pays to check your rate with the Home Loan Rate Promise:

  • You can find out how much you could save on your home loan by switching to a loan with a lower interest rate
  • If we can’t beat your current rate, you can claim a $100 gift card with our Home Loan Rate Promise*

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.