ME Bank, People’s Choice and 86 400 cut home loan rates in two days

ME Bank, People’s Choice and 86 400 cut home loan rates in two days

Three mortgage lenders have reduced their interest rates in the span of two days, as competition intensifies among lenders.

The three lenders, including ME Bank, People’s Choice Credit Union and 86 400, have cut interest rates for both people living in their own properties and those renting them out.

People’s Choice Credit Union

People’s Choice Credit Union introduced a one-year fixed-rate home loan of 1.99 per cent (3.91 per cent comparison rate) for first home buyers paying principal and interest. 

It’s the eighth lender to drop its interest rate below 2 per cent, as an increasing number of home loan rates start with a 1. The first lender to bring its interest to below 2 per cent was Bank of Us in late June, though that offer was exclusively for Tasmanians.

People’s Choice has slashed rates for both new and existing owner-occupier and investor customers, with the biggest cut of 64 basis points going to new customers paying interest-only variable rates to 3.09 per cent (3.09 per cent comparison rate). The rate only applies for borrowers with less than 80 per cent loan-to-value ratio (LVR).

The rate cuts come into effect on August 21.

ME Bank

ME Bank dropped its fixed interest rates by up to 40 basis points for its new and refinancing owner-occupier customers.

The bank’s lowest owner-occupier fixed rate is now 2.19 per cent for customers locked in for one, two or three years. Borrowers with LVRs less than or equal to 90 per cent are eligible for the rate. 

ME’s general manager of home lending Andrew Bartolo said many of the bank’s customers want both the certainty of a low fixed rate, as well as the flexibility of being on a shorter term.

“This offer will help first home buyers achieve their dream of home ownership faster by only requiring a 10 per cent deposit (with lenders’ mortgage insurance), put more money back in their pockets through a lower rate, and give them peace of mind with certainty on exactly what their repayments will be a year or more in advance,” he said.

The rate reductions are effective from August 21.

86 400

Australian neobank 86 400 has launched a tiered system for its variable mortgage rates. 

The changes effectively mean mortgage holders who have a lower LVR, or more equity in their property, may get a maximum discount on their variable rate of up to 25 basis points. The rate would typically remain the same for borrowers with more than 70 per cent LVR.

The variable rate a borrower may be eligible for is based on the LVR they have at approval: 

  • Below 60 per cent – starting from 2.59 per cent (2.87 per cent comparison rate);
  • Below 70 per cent – starting from 2.64 per cent (2.92 per cent comparison rate);
  • Below 80 per cent – starting from 2.74 per cent (3.02 per cent comparison rate).

Melissa Christy, 86 400’s lending product lead, said the tiered system could reduce variable loan rates for customers with more equity in their property, helping Australian mortgage holders do more with their money.

"With rates at an all-time low, it's a great time to refinance,” she said.

A borrower’s interest rate won’t automatically change as the LVR drops or increases. However, if a customer believes their LVR has changed based on their loan amount, they can get in touch with 86 400. If they believe the change is because their property’s value has increased, the lender would need to revalue the property.

The new variable rates came into effect from August 20, and apply to new and existing 86 400 customers.

Some of the lowest interest rates for owner-occupiers

Lender Loan type Advertised rate (%) Comparison rate (%)
Easy Street Financial Services Variable 1.95 1.99
Homestar Finance Fixed – 1-year 1.98 2.41
People's Choice Credit Union Fixed – 1-year (first home buyers only) 1.99 3.91
Community First Credit Union Fixed – 2-years 1.99 3.25
Bank First Fixed – 3-years 1.99 3.1

Source: RateCity.

Did you find this helpful? Why not share this news?

Advertisement

RateCity

Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By signing up, you agree to the ratecity.com.au Privacy & Cookies Policy and Terms of Use, Disclaimer & Privacy Policy

Advertisement

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.

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 are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

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 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.

How much deposit will I need to buy a house?

A deposit of 20 per cent or more is ideal as it’s typically the amount a lender sees as ‘safe’. Being a safe borrower is a good position to be in as you’ll have a range of lenders to pick from, with some likely to offer up a lower interest rate as a reward. Additionally, a deposit of over 20 per cent usually eliminates the need for lender’s mortgage insurance (LMI) which can add thousands to the cost of buying your home.

While you can get a loan with as little as 5 per cent deposit, it’s definitely not the most advisable way to enter the home loan market. Banks view people with low deposits as ‘high risk’ and often charge higher interest rates as a precaution. The smaller your deposit, the more you’ll also have to pay in LMI as it works on a sliding scale dependent on your deposit size.

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.

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. 

Can I get a home loan if I am on an employment contract?

Some lenders will allow you to apply for a mortgage if you are a contractor or freelancer. However, many lenders prefer you to be in a permanent, ongoing role, because a more stable income means you’re more likely to keep up with your repayments.

If you’re a contractor, freelancer, or are otherwise self-employed, it may still be possible to apply for a low-doc home loan, as these mortgages require less specific proof of income.

Will I have to pay lenders' mortgage insurance twice if I refinance?

If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.

Is there a limit to how many times I can refinance?

There is no set limit to how many times you are allowed to refinance. Some surveyed RateCity users have refinanced up to three times.

However, if you refinance several times in short succession, it could affect your credit score. Lenders assess your credit score when you apply for new loans, so if you end up with bad credit, you may not be able to refinance if and when you really need to.

Before refinancing multiple times, consider getting a copy of your credit report and ensure your credit history is in good shape for future refinances.

I have a poor credit rating. Am I still able to get a mortgage?

Some lenders still allow you to apply for a home loan if you have impaired credit. However, you may pay a slightly higher interest rate and/or higher fees. This is to help offset the higher risk that you may default on your repayments.