Digital-only home loan lender Athena is dishing out automatic interest rate cuts to borrowers as they pay off bigger chunks of their mortgages.
Launching today, the new scheme, dubbed “AcceleRates”, has three mortgage rate bands based on a borrower’s loan-to-value ratio (LVR), or the percentage amount of the property a mortgage holder is borrowing:
- For borrowers with an LVR of 70-80 per cent,
- For borrowers with an LVR of 60-70 per cent, and
- For borrowers with an LVR of less than 60 per cent.
As a borrower pays down their home loan to reach the next tier, the lender will automatically trim the customer’s interest rate.
It’s the first time in Australia a home loan lender has set up an LVR-based tier system to determine a borrower’s interest rates.
The lowest rates on offer under the tier-based program start from 2.39 per cent for owner-occupiers, and 2.79 per cent for investors.
The AcceleRates scheme is only open to mortgage borrowers who are paying principal and interest on their home loan.
Customers paying interest only are on the standard variable rates, which have been lowered by 5 basis points to 3.04 per cent for both owner-occupiers and investors.
The new rates take effect for existing customers from September 30, and new customers who apply for a loan from August 12 will also benefit from the lower rates.
How you can pay down your home loan faster
According to RateCity analysis, an existing Athena customer, with a $400,000 loan balance and a 60 per cent LVR with 20 years remaining could:
- move from a rate of 2.59 per cent to 2.39 per cent, and
- save a total of $9,348 over the remainder of the loan. (This assumes no further rate changes are made.)
Sally Tindall, research director at RateCity.com.au, said it was great to see customers being rewarded for paying down their debt.
“It’s not everyday you see a lender initiating an out-of-cycle rate cut for its existing customers,” she said.
“Latest figures from the Reserve Bank of Australia show that, on average, existing customers are paying 0.56 per cent more in interest than new ones."
Nathan Walsh, chief executive officer and co-founder of Athena, said the typical borrower paying off their mortgage on this new scheme could potentially save tens of thousands of dollars.
“What this also means is even greater savings for customers. On average, we are saving customers who switch to us $60,000 over the life of their loan. With our new AcceleRates pricing model, many of these customers will now save $70,000.”
Michael Starkey, chief operations officer & co-founder at Athena, said the typical customer is likely to spend most of the life of their loan on the lowest rate in the scheme, as they could potentially move through the tiers in a matter of years.
“If they start out at the 80 per cent LVR tier and pay the minimum on a principal and interest loan, they would hit the 70 per cent LVR tier in only four years and two months,” Mr Starkey said.
“From there, they would hit our lowest rate in just three years and nine months, where they would stay for the rest of the loan.”
Borrowers have the option to make extra repayments on their mortgage to reduce their LVR and move up the tiers faster.
How to find the right home loan for you
Some Australian mortgage holders struggle with negotiating with their lenders for a rate cut. You may have more bargaining power if you:
- Are an owner-occupier.
- Have less than 80 per cent LVR in your property.
- Have a good credit record.
That’s because lenders see these customers as reliable borrowers, it’s likely that they’d want to keep your business.
Some of the things you should be looking for when refinancing include:
- Low interest rate.
- Low fees.
- Ability to pay it off sooner.
- Ability to offset your savings.
However, not everyone will be seeking the same features in a home loan. For example, if you know you won’t have much to stash away into your offset account, it may not be worth paying extra for this feature if you aren’t going to use it. Similarly, there may not be much point in switching to a low fixed rate if you know you might sell your property during the fixed rate term.