Home loan rates tumble in the last six months, despite no RBA cut

Home loan rates tumble in the last six months, despite no RBA cut

Australia’s banks have continued to cut home loan rates for new customers, despite no RBA cash rate move in the last six months.

Ahead of tomorrow’s RBA board meeting, RateCity has analysed how much home rates have dropped since the last cut.

The Reserve Bank last lowered the cash rate on March 19, down to 0.25 per cent and has left it on hold at the next six meetings.

In the last six-months, 90 lenders (69 per cent) have cut at least one variable rate, according to the RateCity database.

The lowest owner-occupier rate has dropped 0.50 per cent, down to 1.89 per cent.

Owner-occupier home loan rates changes in the last six months

(April RBA meeting to 5 October)

 

7 April 2020

Now Difference
RBA cash rate

0.25%

0.25%

0%

Lowest variable rate

2.39%

1.89%

-0.50%

Lowest 2-yr fixed rate

2.09%

1.99%

-0.10%

Lenders with rates under 2%

0

12

12

Source: RateCity.com.au LVR and loan size restrictions may apply. Rates from RateCity.com.au database are from RBA day Tuesday 7 April,2020 and 5 October, 2020.

The big four banks, which together hold approximately three quarters of Australia’s home loans, have also shaved their lowest variable rates by an average of 0.25 per cent in the last six months – but only for new customers.

Big four bank variable rate changes in the last six months

Bank Lowest variable rate: 7 April Lowest variable

rate now

Difference
CBA

2.79%

2.69%

-0.10%

Westpac

2.93%

2.19% for 2 yrs, 2.69% thereafter

-0.74% for first 2 yrs

NAB

2.84%

2.69%

-0.15%

ANZ

2.72%

2.72%

0.00%

Source: RateCity.com.au Rates from RBA day Tuesday 7 April,2020 and 5 October, 2020.Westpac's lowest variable rate is for a 70% loan-to-value ratio.

RateCity research director Sally Tindall said: “A record number of people have refinanced in the last six months to take advantage of the low rates on offer, however, there are still hundreds of thousands of home-owners overpaying on their mortgage.

“The average existing owner-occupier is on a rate of 3.22 per cent, that’s 0.65 per cent higher than what the big four banks are on average offering new customers for a basic variable loan,” she said.

“There are 12 lenders now offering home loans below 2 per cent, and the list is growing by the week.

“With a possible rate cut waiting in the wings, we could even see a big four bank break the 2 per cent barrier over the next few months.

“The RBA has indicated it’s willing to cut the cash rate down to 0.10 per cent, and while this could come as early as tomorrow, the board is likely to hold off for at least another month.

“Holding fire on the next rate cut will give the RBA more time to properly assess the impact of the Federal Budget and the recent JobSeeker and JobKeeper changes.

“If the RBA cuts the cash rate by 0.15 per cent, there’ll be pressure on the banks to do right by their existing customers.

“At a time when ever dollar counts, a rate cut of 0.15 per cent would save the average mortgage holder $33 a month,” she said.

Big four bank lowest rates

Lender Advertised variable Advertised

2-yr fixed

Advertised

3-yr fixed

CBA

2.69%

2.29%

2.29%

Westpac

2.19% for 2 years then 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.

Lowest owner-occupier rates on RateCity.com.au

  Lender Advertised rate
Variable Reduce Home Loans

1.89%

1-year fixed Homestar Finance

1.98%

2-year fixed Community First Credit Union/Illawarra Credit Union

1.99%

3-year fixed Bank First

1.99%

5-year fixed Virgin Money

2.49%

Source: RateCity.com.au. Home loans above are available Australia-wide.

Note: The rate cut savings are calculated on a $400,000, 30-year loan, at the RBA average rate of 3.22 per cent, paying principal and interest.

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Learn more about home loans

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 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 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.

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.

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 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).

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.

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 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).

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 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 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 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 split home loan?

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.