Greater Bank becomes 10th mortgage lender to offer an interest rate below 2%

Greater Bank becomes 10th mortgage lender to offer an interest rate below 2%

Greater Bank has become the 10th mortgage lender to put forward an interest rate below 2 per cent.

An interest rate below 2 per cent was first introduced as recently as 10 weeks ago, meaning that on average, one lender per week has slashed its home loan rate to under 2 per cent.

The Newcastle-based mutual bank has today reduced its one-year fixed interest rate by 0.10 per cent to 1.99 per cent for principal and interest (P&I) home loans.

Rates on Greater Bank’s interest-only fixed-rate mortgages were also given the same discount as their P&I counterparts, bringing the rate to 2.09 per cent.

New and existing home loan customers wanting to refinance to a fixed rate mortgage may be eligible for the rates, which are only open to borrowers in NSW, ACT and Queensland.

Greater Bank has also introduced new variable rates of 2.68 per cent for owner-occupied loans and 2.98 per cent for investment loans, also effective from today.

Greater Bank gears up for tougher competition

The Reserve Bank of Australia’s (RBA) historic low cash rate has held steady since March, providing low-cost funding to the lender and more affordable interest rates to borrowers, Greater Bank’s chief executive officer, Scott Morgan, said.

“It’s hard to believe that the market now offers a fixed-term rate with a ‘1’ at the start, such is the time we are living,” he said.

“What this does is provide an opportunity for new and existing customers to look at their current financial position and considering fixing their home loan.”

Mr Morgan said Greater Bank will be “very competitive” against major lenders within the fixed home loan market.

“As a customer-owned bank, we don’t have shareholders meaning our financial interests are firmly aligned with the needs of our customers. It is this alignment of interests that allows us to offer one of the most affordable one-year fixed rate home loans in the market,” he said.

Mortgage rates continue to dive

Home loan rates have been in steady decline since March when the RBA slashed the cash rate twice in one month to 0.25 per cent, in response to COVID-19.

RateCity analysis shows that by refinancing to a variable rate of under 2 per cent, an average mortgage holder could potentially save hundreds per month, after fees.

If an owner-occupier who:

  • has a $400,000 home loan paying principal and interest,
  • is on a 25-year loan term, and
  • is on the RBA’s average existing owner-occupier rate of 3.22 per cent

refinanced to a 1.99 per cent loan, they could potentially save about $250 a month, factoring in a one-off $350 discharge fee.

And for mortgage holders who are not eligible for sub-2 per cent rates or want to do their due diligence, 83 lenders on the RateCity database are offering owner-occupier rates below 2.5 per cent.

The lowest variable rate is 1.95 per cent, from Easy Street Financial Services, though it only applies to loans of more than $750,000.

Reduce Home Loans has the lowest fixed rate at 1.90 per cent, which borrowers will have locked in for one year.

The first lender to put a 1 in front of its home loan rate was Bank of Us, which made the record-breaking move in late June.

The 10 lenders offering rates under 2%

Lender Loan product Advertised Rate
Reduce Home Loans Fixed (intro rate 1 year) 1.90%
Easy Street Financial Services Variable (loans over $750K) 1.95%
Homestar Finance 1-year fixed 1.98%
Greater Bank 1-year fixed 1.99%
Bank First 3-year fixed 1.99%
Community First Credit Union 2-year fixed 1.99%
Loans.com.au Variable (intro rate 1 year) 1.99%
People’s Choice Credit Union 1-year fixed 1.99%
Bank of Us 1-year fixed (Tasmania only) 1.99%
Hume Bank 3-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 accurate as of September 8, 2020.

Big four banks – lowest rates

Lender Advertised variable Advertised

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 accurate as of September 8, 2020.

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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 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.

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.

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 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 a honeymoon rate and honeymoon period?

Also known as the ‘introductory rate’ or ‘bait rate’, a honeymoon rate is a special low interest rate applied to loans for an initial period to attract more borrowers. The honeymoon period when this lower rate applies usually varies from six months to one year. The rate can be fixed, capped or variable for the first 12 months of the loan. At the end of the term, the loan reverts to the standard variable rate.

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).

Do mortgage brokers need a consumer credit license?

In Australia, mortgage brokers are defined by law as being credit service or assistance providers, meaning that they help borrowers connect with lenders. Mortgage brokers may not always need a consumer credit license however if they’re operating solo they will need an Australian Credit License (ACL). Further, they may also need to comply with requirements asking them to mention their license number in full.

Some mortgage brokers can be “credit representatives”, or franchisees of a mortgage aggregator. In this case, if the aggregator has a license, the mortgage broker need not have one. The reasoning for this is that the franchise agreement usually requires mortgage brokers to comply with the laws applicable to the aggregator. If you’re speaking to a mortgage broker, you can ask them if they receive commissions from lenders, which is a good indicator that they need to be licensed. Consider requesting their license details if they don’t give you the details beforehand. 

You should remember that such a license protects you if you’re given incorrect or misleading advice that results in a home loan application rejection or any financial loss. Brokers are regulated by the Australian Securities & Investment Commission (ASIC), as per the National Consumer Credit Protection (NCCP) Act. 

What are the responsibilities of a mortgage broker?

Mortgage brokers act as the go-between for borrowers looking for a home loan and the lenders offering the loan. They offer personalised advice to help borrowers choose the right home loan for their needs.

In Australia, mortgage brokers are required by law to carry an Australian Credit License (ACL) if they offer credit assistance services. Which is the legal term for guidance regarding the different kinds of credit offered by lenders, including home loan mortgages. They may not need this license if they are working for an aggregator, for instance, as a franchisee. In both these situations, they need to comply with the regulations laid down by the Australian Securities and Investments Commission (ASIC).

These regulations, which are stipulated by Australian legislation, require mortgage brokers to comply with what are called “responsible lending” and “best interest” obligations. Responsible lending obligations mean brokers have to suggest “suitable” home loans. This means loans that you can easily qualify for,  actually meet your needs, and don’t prove unnecessarily challenging for you.

Starting 1 January 2021, mortgage brokers must comply with best interest obligations in addition to responsible lending obligations. These require mortgage brokers to act in the best interest of their customers and also requires them to prioritise their customers’ interests over their own. For instance, a mortgage broker may not recommend a lender who gives them a commission if that lender’s home loan offer does not benefit that particular customer.

How to break up with your mortgage broker

If you find a mortgage broker giving you generic advice or trying to sell you a competitive offer from an unsuitable lender, you might be better off  breaking up with the mortgage broker and consulting someone else. Breaking up with a mortgage broker can be done over the phone, or via email. You can also raise a complaint, either with the broker’s aggregator or with the Australian Financial Complaints Authority as necessary.

As licensed industry professionals, mortgage brokers have the responsibility of giving you accurate advice so that you know what to expect when you apply for a home loan. You may have approached the mortgage broker, for instance, because you have questions about the terms of a home loan a lender offered you. 

You should remember that mortgage brokers are obliged by law to act in your best interests and as part of complying with The Australian Securities and Investments Commission’s (ASIC) regulations. If you feel you didn’t get the right advice from the mortgage broker, or that you lost money as a result of accepting the broker’s suggestions regarding a lender or home loan offer, you can file a complaint with the ASIC and seek compensation. 

When you first speak to a mortgage broker, consider asking them about their Lender Panel, which is the list of lenders they usually recommend and who may pay them a commission. This information can help you decide if the advice they give you has anything to do with the remuneration they may receive from one or more lenders.

How do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.

What happens when you default on your mortgage?

A mortgage default occurs when you are 90 days or more behind on your mortgage repayments. Late repayments will often incur a late fee on top of the amount owed which will continue to gather interest along with the remaining principal amount.

If you do default on a mortgage repayment you should try and catch up in next month’s payment. If this isn’t possible, and missing payments is going to become a regular issue, you need to contact your lender as soon as possible to organise an alternative payment schedule and discuss further options.

You may also want to talk to a financial counsellor.