Fixed home loan rate war: St. George, Bank of Melbourne and BankSA cut rates

Fixed home loan rate war: St. George, Bank of Melbourne and BankSA cut rates

Three major Australian banks, St George, Bank of Melbourne and BankSA, cut fixed home loan rates by as much as 0.25 per cent, as the fixed rate war continues to rage.

The Westpac Group subsidiaries announced the cuts on Friday, becoming the latest of 104 lenders to cut fixed home loan rates since March 2020.

  • St. George and Bank of Melbourne are now offering 2- and 3-year fixed rates from 2.59 per cent.
  • BankSA is now offering 2- and 3-year fixed rates from 2.69 per cent.

These latest rate cuts are most likely designed to get new business on Westpac Group’s books, as home loan lenders across Australia battle it out with historically low fixed rates.

Since March, the average 2-year fixed rate has fallen 54 basis points from 3.18 per cent to 2.64 percent.

Average 2-, 3- and 5-year fixed rates from March – June 2020

Date 2- year fixed 3-year fixed 5-year fixed
1 March

3.18%

3.23%

3.48%

22 June

2.64%

2.72%

3.09%

Difference

-0.54%

-0.51%

-0.39%

Source: RateCity.com.au. Notes: Rates based on the average owner-occupier, principal and interest fixed rates from 1 March 2020 to 22 June 2020.

Interestingly, the lowest rates on offer from St. George and Bank of Melbourne are being reserved for homeowners with minimum LVRs of 60 per cent.

This means that those looking to switch to these competitive rates will need significant equity in their home, or first home buyers will need deposits of at least 40 per cent.

Put simply, these lenders are saving their lowest rates for the safest borrowers.

To fix or not to fix

If you’re a first home buyer, or if you’ve been on a variable home loan and are considering refinancing, you may be wondering if now is the right time is to fix?

With Australia entering its first recession in almost 30 years, we’re certainly treading uncertain economic waters. However, a general rule of thumb is that you cannot predict the bottom of the market.

While fixed rates are at a record low, this may change in the long term as some banks have reversed the trend by hiking their rates.

According to RateCity research, 6 banks actually hiked their fixed rates in June, including ING, which previously offered the lowest fixed rate in the market (2.09 per cent).

If you believe that a good fixed rate offer is on the line, there are a few things to consider before fixing:

  • Certainty in repayments. A fixed home loan rate means you’ll be making the same consistent repayment each month until the end of the fixed period. If you’re the type of borrower who likes a stable budget, then a fixed home loan may suit you.
  • Protected from cash rate hikes. If the RBA were to raise the cash rate, your variable interest rate would follow suit. Fixing your home loan is one way of ensuring you’re not at the mercy of the market.
  • Revert rates. Once the fixed rate period ends, your home loan may automatically switch to your lender’s variable interest rate, which is typically much higher.
  • Miss out on cash rate cuts. While a fixed rate may protect you from an increased cash rate, it does mean you miss out on any potential further cuts. You may end up stuck on a fixed rate that’s higher than the lowest variable rates.

 

If you’re sure about fixing your home loan, you’ll want to make sure you do your research. Don’t just look at the interest rates, but ensure you compare potential fees and features. And as noted above, you may need to ensure you have a large deposit or some equity up your sleeve before you can qualify for the lowest home loan rates on offer.

Here are a range of the lowest fixed rate home loans on the RateCity database:

Lowest fixed owner-occupier home loan rates

Lender Home loan Fixed term Advertised rate Comparison rate
HSBC Premier Fixed Rate Home Loan

2 years

2.09%

3.10%

BCU Fixed Home Loan

2 years

2.12%

3.78%

Newcastle Permanent Premium Plus Package Fixed Rate Home Loan Special

2 years

2.18%

3.72%

Source: RateCity.com.au. Notes: Data based on lowest owner-occupier, principal and interest fixed rates, accurate as at 22/06/2020.

Big four bank lowest owner-occupier fixed rates

Lender Home loan Fixed term Advertised rate Comparison rate
CBA Wealth Package Fixed Rate Home Loan 2 years 2.29% 3.99%
NAB Choice Package Tailored Home Loan Fixed 2 years 2.19% 4.02%
Westpac Premier Package Fixed Options Home Loan 2 years 2.19% 3.43%
ANZ Breakfree Package Fixed Rate Home Loan 2 years 2.29% 4.02%

Source: RateCity.com.au. Notes: Data based on lowest owner-occupier, principal and interest fixed rates, accurate as at 22/06/2020.

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Fact Checked -

This article was reviewed by Personal Finance Editor Mark Bristow 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.

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.

How long can you fix a home loan rate for?

Most lenders should let you fix your interest rate for anywhere between one and five years. While rare, a few lenders may offer fixed rate terms for as long as 10 years.

Fixing your home loan interest rate for a longer term can keep your budgeting fairly straightforward, as you shouldn't have to factor in changes to your mortgage repayments if variable rates change, such as when the Reserve Bank of Australia (RBA) changes its rates at its monthly meeting. Additionally, if variable rates rise during your fixed rate term, you can continue to pay the lower fixed rate until the fixed term ends, potentially saving you some money.

Of course, a longer fixed term also means a longer length of time where you may have less flexibility in your home loan repayments. It’s also a longer period where you won’t be able to refinance your mortgage without paying break fees. If variable rates were to fall during this period, you may also be stuck paying a higher fixed rate for a longer period.

What are the different types of home loan interest rates?

A home loan interest rate is used to calculate how much you’ll pay the lender, usually annually, above the amount you borrow. It’s what the lenders charge you for them lending you money and will impact the total amount you’ll pay over the life of your home loan. 

Having understood what are home loan rates in general, here are the two types you usually have with a home loan:

Fixed rates

These interest rates remain constant for a specific period and are a good option if you’re a first-time buyer or if you’re looking for a fixed monthly repayment. One possible downside of a fixed rate is that it may be higher than a variable rate. Also, you don’t benefit from any lowering of interest rates in the market. On the flip side, if rates go up, your rate won’t change, possibly saving you money.

Variable rates

With variable interest rates, the lender can change them at any time. This change can be based on economic conditions or other reasons. Changes in interest rates could be beneficial if your monthly repayment decreases but can be a problem if it increases. Variable interest rates offer several other benefits often not available with fixed rate home loans like redraw and offset facilities and free extra repayments. 

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. 

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.

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 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.

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.

How does ANZ calculate early repayment costs?

If you have a fixed interest home loan, you’ll pay ANZ home loan early exit fees for partial or full repayment of the loan amount before the end of the fixed interest rate duration. These fees are also payable if you switch to another variable or fixed-rate loan.

The ANZ mortgage early exit fees can vary and you can get an estimate from the lender before you decide to prepay the loan. However, the exact early repayment cost can be determined when you prepay the loan.

The early exit fees are calculated after considering factors like the prepayment amount, the period left before the fixed-rate duration ends, and the change in the market rates since the beginning of the fixed-rate period. The early exit fees may not be charged if you’re paying off a smaller amount. You can check with ANZ to see how much you’ll have to pay.

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 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.

How do you determine which home loan rates/products I’m shown?

When you check your home loan rate, you’ll supply some basic information about your current loan, including the amount owing on your mortgage and your current interest rate.

We’ll compare this information to the home loan options in the RateCity database and show you which home loan products you may be eligible to apply for.

 

What is the Home Loan Rate Promise?

The Home Loan Rate Promise is RateCity putting its money where its mouth is. We believe that too many Australians are paying too much for their home loans. We’re so confident we can help Aussies save money, if we can’t beat your current rate, we’ll give you a $100 gift card.*

There are two reasons it pays to check your rate with the Home Loan Rate Promise:

  • You can find out how much you could save on your home loan by switching to a loan with a lower interest rate
  • If we can’t beat your current rate, you can claim a $100 gift card with our Home Loan Rate Promise*