Banks ready themselves for rate cut but RBA expected to hold

Banks ready themselves for rate cut but RBA expected to hold

Banks are trimming home loan and deposit rates despite the fact the RBA is likely to keep rates on hold tomorrow, signalling there may still be a cut on the cards later in 2020.

Analysis of the RateCity.com.au database shows 16 lenders have cut fixed rate home loans by up to 1.25 per cent since the beginning of the year.

Term deposit rates have also been tumbling, with 26 banks slicing rates since January 1.

Research director Sally Tindall said: “Term deposit cuts, in particular, are often a sign there’s a change to the cash rate coming.”

“However last month’s bump in inflation and employment figures gives the board a reason to hold fire on the next cash rate cut. The RBA will also want time to assess the ramifications of the unfolding bushfire and coronavirus emergencies” she said.

While the cash rate was slashed by 0.75 per cent last year, the average 3-year-fixed rate from the big four banks for owner occupiers paying principal and interest has dropped 0.96 per cent from February 2019 to today.

Meanwhile three-year term deposit rates from the big four banks have dropped by an average of 1.33 per cent since February 2019, Tindall said.

“While mortgage holders are enjoying lower rates and repayments, it’s a different story for savers, whose returns have been plummeting.”

Big four bank owner-occupier fixed home loan rates

2-year fixed

  Feb 19 Feb 20 Change
CBA 3.79% 2.99% -0.80%
Westpac 3.79% 2.88% -0.91%
NAB 3.69% 2.88% -0.81%
ANZ 3.75% 2.98% -0.77%

Source: RateCity.com.au. Rates based on owner-occupier, principal and interest loan of $300K. No LVR restrictions.

3-year fixed

  Feb 19 Feb 20 Change
CBA 3.89% 2.99% -0.90%
Westpac 3.79% 2.88% -0.91%
NAB 3.99% 2.98% -1.01%
ANZ 3.99% 2.98% -1.01%

Source: RateCity.com.au. Rates based on owner-occupier, principal and interest loan of $300K. No LVR restrictions.

5-year fixed

  Feb 19 Feb 20 Change
CBA 4.39% 3.49% -0.90%
Westpac 4.19% 3.39% -0.80%
NAB 4.24% 3.19% -1.05%
ANZ 4.19% 3.53% -0.66%

Source: RateCity.com.au. Rates based on owner-occupier, principal and interest loan of $300K. No LVR restrictions.

Big four bank term deposit rates

1-year

  Feb 19 Feb 20 Change
CBA 2.20% 1.10% -1.10%
Westpac 2.30% 1.20% -1.10%
NAB 2.40% 1.20% -1.20%
ANZ 2.30% 1.30% -1.00%

Source: RateCity.com.au. Based on a term deposit of $20,000.

3-year

  Feb 19 Feb 20 Change
CBA 2.40% 1.15% -1.25%
Westpac 2.50% 1.20% -1.30%
NAB 2.60% 1.15% -1.45%
ANZ 2.50% 1.20% -1.30%

Source: RateCity.com.au. Based on a term deposit of $20,000.

5-year

  Feb 19 Feb 20 Change
CBA 2.65% 1.15% -1.50%
Westpac 2.80% 1.20% -1.60%
NAB 2.80% 1.25% -1.55%
ANZ 2.80% 1.26% -1.54%

Source: RateCity.com.au. Based on a term deposit of $20,000.

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

Savings over

Select a number of years to see how much money you can save with different home loans over time.

e.g. To see how much you could save in two years by switching mortgages,  set the slider to 2.

How can I get ANZ home loan pre-approval?

Shopping for a new home is an exciting experience and getting a pre-approval on the loan may give you the peace of mind that you are looking at properties within your budget. 

At the time of applying for the ANZ Bank home loan pre-approval, you will be required to provide proof of employment and income, along with records of your savings and debts.

An ANZ home loan pre-approval time frame is usually up to three months. However, being pre-approved doesn’t necessarily mean you will get your home loan. Other factors could lead to your home loan application being rejected, even with a prior pre-approval. Some factors include the property evaluation not meeting the bank’s criteria or a change in your financial circumstances.

You can make an application for ANZ home loan pre-approval online or call on 1800100641 Mon-Fri 8.00 am to 8.00 pm (AEST).

Interest Rate

Your current home loan interest rate. To accurately calculate how much you could save, an accurate interest figure is required. If you are not certain, check your bank statement or log into your mortgage account.

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 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 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 a low-deposit home loan?

A low-deposit home loan is a mortgage where you need to borrow more than 80 per cent of the purchase price – in other words, your deposit is less than 20 per cent of the purchase price.

For example, if you want to buy a $500,000 property, you’ll need a low-deposit home loan if your deposit is less than $100,000 and therefore you need to borrow more than $400,000.

As a general rule, you’ll need to pay LMI (lender’s mortgage insurance) if you take out a low-deposit home loan. You can use this LMI calculator to estimate your LMI payment.

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.

Monthly Repayment

Your current monthly home loan repayment. To accurately calculate how much you could save, an accurate payment figure is required. If you are not certain, check your bank statement.

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.

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. 

If I don't like my new lender after I refinance, can I go back to my previous lender?

If you wish to return to your previous lender after refinancing, you will have to go through the refinancing process again and pay a second set of discharge and upfront fees. 

Therefore, before you refinance, it’s important to weigh up the new prospective lender against your current lender in a number of areas, including fees, flexibility, customer service and interest rate.

Can I refinance if I have other products bundled with my home loan?

If your home loan was part of a package deal that included access to credit cards, transaction accounts or term deposits from the same lender, switching all of these over to a new lender can seem daunting. However, some lenders offer to manage part of this process for you as an incentive to refinance with them – contact your lender to learn more about what they offer.