Homestar ups the ante with new lowest rate in the country, ahead of RBA

Homestar ups the ante with new lowest rate in the country, ahead of RBA

Homestar Finance has announced a new ongoing variable rate of just 1.79 per cent on the eve of a potential RBA cut.

This is now the lowest ongoing variable mortgage rate in Australia.

Homestar Finance Star Gold loan

  • Rate: 1.79% ongoing variable, 1.84% comparison rate
  • Fees: $911 upfront, $0 ongoing
  • Conditions: owner occupiers paying principal and interest, 60% loan to value ratio, loans up to $850,000.

How much the average borrower could save by refinancing (including switch costs)

A typical borrower with $400k loan balance who refinances to Homestar could potentially save $4,290 in the first year, or $25,287 over five years.

This is significantly more than a refinancer who switches to the average new customer rate of 2.69 per cent, as recorded by the RBA (see table below).

Potential savings by refinancing a $400k loan

  Switch to Homestar rate Switch to av. new cust. rate
1 year

$4,290

$1,635

5 years

$25,287

$9,203

Notes: based on an owner occupier paying P&I with a $400K balance outstanding 5 years into a 30 year loan. Switching from the average existing customer rate of 3.19% to the average new customer rate of 2.69%, according to the RBA. Based on interest paid and fees. Fees include discharge fee from old lender and upfront fees from new lender but not government switching fees.

Sally Tindall, research director at RateCity.com.au, said lenders were neck-and-neck in the race to have the lowest rate.

“At 1.79 per cent, this is now the lowest home loan rate available in Australia, but with an RBA cut potentially just hours away rates are likely to keep on falling,” she said.

“Lenders are leap-frogging under each other to take out the title of the lowest rate loan. We aren’t at the bottom just yet.

“The big question is whether the banks will pass on an RBA cut to their existing customers.

"There are a lot of mortgage holders who aren’t in a position to refinance. Right now they can only dream of having a rate that starts with a 2, let alone a 1,” she said.

Sharpest loans for people with the biggest deposits

RateCity analysis shows 20 lenders offer discounted rates for people who have a loan to value ratio of 60 per cent, including St George, Bank of Melbourne and Macquarie.

“Many homeowners might not know they are eligible for these rock-bottom rates,” she said.

“If you’ve been paying down your loan for more than five years, and your property’s gone up in value, there’s a chance you might qualify.

“Check the vitals on your home loan – your rate, how much you owe and how much your property is worth. If you haven’t refinanced for a few years, you’ll be amazed at what lenders are willing to offer,” she said.

How does this 1.79 per cent rate compare?

Lowest ongoing variable rates on RateCity.com.au

Lender Advertised

rate

Homestar Finance

1.79%

Reduce Home Loans

1.89%

Pacific Mortgage Group

1.99%

Freedom Lend

2.17%

Well Home Loans

2.17%

Lowest owner-occupier home loan rates on RateCity.com.au

  Lender Advertised rate  
Variable Homestar Finance

1.79%

 
1-year fixed Reduce Home Loans

1.90%

 
2-year fixed Illawarra Credit Union

1.99%

 
3-year fixed Bank First/ Hume Bank

1.99%

 
5-year fixed Citi Bank

2.39%

 

Big four banks’ lowest home loan rates

Lender Advertised variable Advertised Advertised
2-yr fixed 3-yr fixed
CBA

2.69%

2.29%

2.29%

Westpac

2.19% for 2 yrs then 2.69%

2.19%

2.19%

NAB

2.69%

2.19%

2.29%

ANZ

2.72%

2.29%

2.29%

Note: Applications for the Homestar Finance Star Gold loan must be made by 31st December 2020 and loans settled by 31st March 2021.

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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.

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 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 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 construction loan?

A construction loan is loan taken out for the purpose of building or substantially renovating a residential property. Under this type of loan, the funds are released in stages when certain milestones in the construction process are reached. Once the building is complete, the loan will revert to a standard principal and interest mortgage.

How common are low-deposit home loans?

Low-deposit home loans aren’t as common as they once were, because they’re regarded as relatively risky and the banking regulator (APRA) is trying to reduce risk from the mortgage market.

However, if you do your research, you’ll find there is still a fairly wide selection of banks, credit unions and non-bank lenders that offers low-deposit home loans.

What is a building in course of erection loan?

Also known as a construction home loan, a building in course of erection (BICOE) loan loan allows you to draw down funds as a building project advances in order to pay the builders. This option is available on selected variable rate loans.

Do other comparison sites offer the same service?

Real Time RatingsTM is the only online system that ranks the home loan market based on your personal borrowing preferences. Until now, home loans have been rated based on outdated data. Our system is unique because it reacts to changes as soon as we update our database.

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.

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.

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