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Eight lenders now offering home loan rates below 2%

Eight lenders now offering home loan rates below 2%

There are now eight lenders offering home loan rates under 2 per cent, with People’s Choice Credit Union today cutting its 1-year-fixed rate to 1.99 per cent.

The 2 per cent barrier was broken at the end of June. Just seven weeks later and another seven lenders have joined the ranks

RateCity database analysis:

  • 8 lenders are offering owner-occupier rates below 2%
  • 81 lenders are offering owner occupier rates below 2.5%
  • Lowest variable is 1.95%
  • Lowest fixed is 1.98%

RateCity research shows refinancing to a rate under 2 per cent could save the average mortgage holder around $250 a month after switching costs. This is based on a $400,000 owner-occupier home loan paying principal and interest.

RateCity research director, Sally Tindall, said: “It’s a win for home-owners to see the list of lenders offering rates below two per cent continuing to grow.”

“Some of these sub-2 per cent rates have unusual terms and conditions so they won’t suit everyone.

“But with 81 lenders offering owner-occupier rates under 2.5 per cent, refinancers are spoilt for choice, particularly if they’re looking for a fixed rate.

“We expect more lenders to join the under 2 per cent club, but it’s unlikely the big four banks will take out a membership any time soon,” she said.

The lowest rate currently being offered by the big four banks is 2.19 per cent from Westpac and NAB.

Lenders offering rates under 2%

LenderLoan productAdvertised Rate
Easy Street Financial ServicesVariable (loans over $750K)1.95%
Homestar Finance1-year fixed1.98%
Bank First3-year fixed1.99%
Community First Credit Union2-year fixed1.99%
Loans.com.auVariable (intro rate 1 year)1.99%
People’s Choice Credit Union1-year fixed1.99%
Bank of Us1-year fixed (Tasmania only)1.99%
Hume Bank3-year fixed (Local postcodes only)1.99%

Source: RateCity.com.au. Note: Hume Bank rate is only available to new loans for renovation or construction of new properties within 150 km of Albury Post Office. Loans.com.au product is an introductory variable rate – 1.99% for one year after which it reverts to 2.57%. Data accurare as of 21.08.2020.

Lowest owner-occupier rates on RateCity.com.au

LenderAdvertised rate
VariableEasy Street Financial Services

1.95%

2-year fixedCommunity First Credit Union

1.99%

3-year fixedHume Bank/Bank First

1.99%

5-year fixedUBank/ING/MOVE Bank/Police Bank/Citi

2.59%

Source: RateCity.com.au. Hume Bank rate is only available to new loans for renovation or construction of new properties within 150 km of Albury Post Office. Data accurare as of 21.08.2020.

Big Four Bank lowest rates

LenderAdvertised variableAdvertised

2-yr fixed

Advertised

3-yr fixed

CBA

2.79%

2.29%

2.29%

Westpac

2.69%

2.19%

2.19%

NAB

2.69%

2.19%

2.29%

ANZ

2.72%

2.29%

2.29%

Source: RateCity.com.au. Note: Rates are for owner occupiers paying principal and interest. *Westpac’s rates are for customers with a loan-to-value ratio of less than 70 per cent. Data accurare as of 21.08.2020.

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This article was reviewed by Research Director Sally Tindall before it was published as part of RateCity's Fact Check process.

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Learn more about home loans

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.

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.

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.

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.

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. 

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 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 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 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.

Does the Home Loan Rate Promise apply to discounted interest rate offers, such as honeymoon rates?

No. Temporary discounts to home loan interest rates will expire after a limited time, so they aren’t valid for comparing home loans as part of the Home Loan Rate Promise.

However, if your home loan has been discounted from the lender’s standard rate on a permanent basis, you can check if we can find an even lower rate that could apply to you.

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.

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.

How to apply for ANZ home loan during maternity leave?

Qualifying for an ANZ home loan while you’re on maternity leave may require some research.

Much like other home loan applications, you'll need to be able to show the lenders that you’ll be able to pay the mortgage instalments on time, even during maternity leave, which can improve  chances of your home loan being approved. Your chances improve if you have savings, home equity, or if you receive any government-related benefits.

You’ll likely need  to provide no less than three payslips you received before the start of your maternity leave and a letter from your employer, with the letter stating the maternity leave terms such as the date on which you’ll return to work and the kind of employment (full-time, part-time, or casual) when you resume.

Your lender will likely consider the tenure of your maternity leave while assessing your loan application. Lenders also prefer if you are paid while on maternity leave; however, you may receive only half your salary, so the lender may not consider your regular income to determine the loan amount.

How long does ANZ take to approve a home loan?

The process of applying for a home loan usually stays the same across all lenders. On the other hand, the time it takes for a lender to approve the home loan differs from lender to lender. When it comes to ANZ, it takes anywhere between 15 to 18 business days to approve a home loan from the day of the application to approval. This timeframe is highly dependent on the credibility and availability of your documentation. You can apply for an ANZ home loan in two ways; a Quick Start home loan application or a full online application.

If you opt for the Quick Start home loan option, you’ll need to fill out a form with basic details. During this stage, you don’t need to add any supporting information. An ANZ representative will then call you within 48 hours. The representative will help take your application forward, including assessing all relevant information, documentation and conducting a credit check.

You can also submit your entire home loan application with ANZ online by filling out a comprehensive form with all the information and documentation needed.

Once ANZ has conducted the preliminary checks, you’ll be informed of the pre-approved amount they’re willing to offer. Based on this amount, you can set a budget for your property search and make sure you stay inside your budget. Pre-approval will last for three months but can be extended by applying with ANZ if you don’t find a property. But it’s best to find a property as soon as possible as ANZ may decide to change the amount if your financial situation changes.

After you find a property and have your offer accepted, ANZ may send an assessor to the property to verify it’s value. If everything is per their terms and conditions, ANZ will finalise your home loan’s approval and release the funds.