Cash rate held but low rates are still up for grabs

Cash rate held but low rates are still up for grabs

The Reserve Bank of Australia (RBA) has today held the cash rate at a record low of 0.25 per cent for the fifth month in a row. But there are still record-low home loan rates up for grabs for borrowers willing to make the switch.

The RBA has held the cash rate at 0.25 per cent since it made an emergency cut mid-March in response to the economic impacts of the COVID-19 pandemic. Meanwhile, RateCity research has found that 39 home loan lenders have cut interest rates since the last RBA meeting on the 7th July, including Macquarie Bank, HSBC and Bendigo.

A 2020 RateCity survey found that 43 per cent of home loan borrowers were looking to refinance. This is a sharp increase from 19 per cent of borrowers from the 2018 RateCity survey.

Borrowers who aren’t considering refinancing may be missing out on some of the perks switching home loans can bring, including reduced interest rates, increased loan flexibility and access to equity. Just keep in mind that there can be some switching costs, but typically the savings that come from refinancing may even it out.

RateCity research shows that an owner-occupier paying the average variable principal and interest rate of 3.42 per cent (as at 31 July), with 25 years left on a $350,000 home loan, could be $181 better off each month if they switched home loans and shaved just 1 per cent off of their interest rate. This would mean a savings of $2,172 a year just by refinancing.

A one per cent cut may seem generous, but when you consider that the current lowest rates on the market are hovering around 2 per cent, and that lenders typically reserve some of their most competitive rates for new customers, it’s not outside the realm of possibility.

Can we expect a cut in the future?

While the RBA previously held the cash rate at 1.50 per cent for over two years, the ramifications of the COVID-19 virus on Australia means that a cut may come sooner than expected.

The RBA most commonly moves the cash rate in increments of 25 basis points. However, Governor Philip Lowe hinted that a smaller cash rate change may be possible.

In a speech to the Anika Foundation last month, Governor Lowe said: “Using international experience as a guide, it would have been possible to configure the existing elements of the RBA package differently.”

“For example, the various interest rates currently at 25 basis points could have been set lower, at say 10 basis points,” he said.

If you’re considering refinancing now, or even if you want to wait for a potential further rate cut, it’s not unlikely that banks will continue cutting home loan rates out of cycle

Here are some of the lowest home loan rates on the RateCity database:

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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 happens to your mortgage when you die?

There is no hard and fast answer to what will happen to your mortgage when you die as it is largely dependent on what you have set out in your mortgage agreement, your will (if you have one), other assets you may have and if you have insurance. If you have co-signed the mortgage with another person that person will become responsible for the remaining debt when you die.

If the mortgage is in your name only the house will be sold by the bank to cover the remaining debt and your nominated air will receive the remaining sum if there is a difference. If there is a turn in the market and the sale of your house won’t cover the remaining debt the case may go to court and the difference may have to be covered by the sale of other assets.  

If you have a life insurance policy your family may be able to use some of the lump sum payment from this to pay down the remaining mortgage debt. Alternatively, your lender may provide some form of mortgage protection that could assist your family in making repayments following your passing.

Mortgage Calculator, Loan Results

These are the loans that may be suitable, based on your pre-selected criteria. 

How does a redraw facility work?

A redraw facility attached to your loan allows you to borrow back any additional repayments that you have already paid on your loan. This can be a beneficial feature because, by paying down the principal with additional repayments, you will be charged less interest. However you will still be able to access the extra money when needed.

What is an ombudsman?

An complaints officer – previously referred to as an ombudsman -looks at formal complaints from customers about their credit providers, and helps to find a fair and independent solution to these problems.

These services are handled by the Australian Financial Complaints Authority, a non-profit government organisation that addresses and resolves financial disputes between customers and financial service providers.

Mortgage Calculator, Loan Purpose

This is what you will use the loan for – i.e. investment. 

Mortgage Calculator, Property Value

An estimate of how much your desired property is worth. 

What is the ratings scale?

The ratings are between 0 and 5, shown to one decimal point, with 5.0 as the best. The ratings should be used as an easy guide rather than the only thing you consider. For example, a product with a rating of 4.7 may or may not be better suited to your needs than one with a rating of 4.5, but both are probably much better than one with a rating of 1.2.

What is breach of contract?

A failure to follow all or part of a contract or breaking the conditions of a contract without any legal excuse. A breach of contract can be material, minor, actual or anticipatory, depending on the severity of the breaches and their material impact.

How will Real Time Ratings help me find a new home loan?

The home loan market is complex. With almost 4,000 different loans on offer, it’s becoming increasingly difficult to work out which loans work for you.

That’s where Real Time RatingsTM can help. Our system automatically filters out loans that don’t fit your requirements and ranks the remaining loans based on your individual loan requirements and preferences.

Best of all, the ratings are calculated in real time so you know you’re getting the most current information.

How is the flexibility score calculated?

Points are awarded for different features. More important features get more points. The points are then added up and indexed into a score from 0 to 5.

What is the amortisation period?

Popularly known as the loan term, the amortisation period is the time over which the borrower must pay back both the loan’s principal and interest. It is usually determined during the application approval process.

Mortgage Calculator, Interest Rate

The percentage of the loan amount you will be charged by your lender to borrow. 

How can I get a home loan with no deposit?

Following the Global Financial Crisis, no-deposit loans, as they once used to be known, have largely been removed from the market. Now, if you wish to enter the market with no deposit, you will require a property of your own to secure a loan against or the assistance of a guarantor.