More lenders hold back part of the rate cut

More lenders hold back part of the rate cut

A growing number of banks have decided not to pass on the full 0.25 per cent RBA rate cut.

Australia’s second largest bank Westpac, and its subsidiaries St George, Bank of Melbourne, Bank SA and RAMS will pass on a 0.20 per cent cut to their owner-occupier customers. They are however, cutting investor interest-only rates above and beyond the RBA, by 0.35 per cent.

Suncorp Bank has also announced it will cut all variable home loan interest rates by 0.20 per cent, effective 21 June.

This follows ANZ’s decision yesterday to pass on just 0.18 per cent – the smallest cut to date.

RateCity.com.au research director Sally Tindall said by holding back part of the cut for themselves, these banks risk angering their loyal customers.

“A lot of Westpac and ANZ variable rate customers will be frustrated by this news, but it’s important for them to remember, they don’t have to take it lying down,” she said.

“One of the best things about being on a variable rate is that you’re well within your rights to take your business elsewhere.

“Check whether your lender is passing on the rate cut, but also see what the competition is offering, because ultimately the lower the comparison rate, the more money you’re likely to have left in your pocket.

“Although it’s good to see Australia’s largest bank, CBA, pass on the full cut, it’s a pity they are making their customers wait three weeks before they see any savings.”

Other lenders passing on the full 0.25 per cent rate cut include:

  • Macquarie Bank
  • Athena
  • Greater Bank
  • BCU
  • Homestar Finance
  • Newcastle Permanent

For a live list of who’s moved visit: https://www.ratecity.com.au/rba-cash-rate.

Big bank moves for owner occupiers paying principal and interest

Bank Cut New standard variable rate New discounted variable rate New lowest variable rate
CBA 0.25% 5.12% 4.52% 3.54%
Westpac 0.20% 5.18% 4.38% 3.78%
NAB 0.25% 5.11% 4.26% 3.54%
ANZ 0.18% 5.18% 4.38% 3.63%

Source: RateCity.com.au

Note: ANZ and NAB rates effective 14 June 2019, Westpac rates effective 18 June and CBA rates are effective 25 June 2019. Rates are for a loan size of $400K.

How much the average ANZ and Westpac home loan customer is missing out on with a $400K loan:

Missed savings

Monthly

Missed savings

Annual

ANZ $16 $198
Westpac $11 $141

Source: RateCity.com.au

Note: Based on an owner occupier on a discounted variable rate paying principal and interest over 30 years with a $400K home loan.

Who’s moved already?

Lender Rate change Date effective New lowest rate
ANZ -0.18% 14/06/2019 3.63%
CBA -0.25% 25/06/2019 3.54%
NAB -0.25% 14/06/2019 3.54%
Westpac -0.20% 18/06/2019 3.78%
Reduce Home Loans up to -0.25% 04/06/2019 3.19%
Athena Home Loans -0.25% 04/06/2019 3.34%
RACQ Bank -0.25% from 10/06/2019 3.44%
Macquarie Bank -0.25% 21/06/2019 3.44%
BCU -0.25% 01/07/2019 3.54%
Auswide One product -0.25% 06/06/2019 3.69%
BankSA -0.20% 18/06/2019 3.59%
Bank of Melbourne -0.20% 18/06/2019 3.54%
St George -0.20% 18/06/2019 3.58%
RAMS -0.20% 18/06/2019 3.79%
Suncorp -0.20% 21/06/2019 3.49%
Homestar Finance -0.25% Immediately 3.24%
Greater Bank -0.25% 11/06/2019 3.57%
Newcastle Permanent -0.25% 17/06/2019 TBC

Source: RateCity.com.au

Note: Westpac Group is cutting by 0.35% for investors paying interest only however every other variable product is 0.20%

Some of the lowest variable rates following yesterday’s announcement

Lender Rate
Reduce Home Loans 3.19%
Homestar Finance 3.24%
Mortgage House 3.29%
Athena Home Loans 3.34%

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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 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 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 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.

How much of the RBA rate cut do lenders pass on to borrowers?

When the Reserve Bank of Australia cuts its official cash rate, there is no guarantee lenders will then pass that cut on to lenders by way of lower interest rates. 

Sometimes lenders pass on the cut in full, sometimes they partially pass on the cut, sometimes they don’t at all. When they don’t, they often defend the decision by saying they need to balance the needs of their shareholders with the needs of their borrowers. 

As the attached graph shows, more recent cuts have seen less lenders passing on the full RBA interest rate cut; the average lender was more likely to pass on about two-thirds of the 25 basis points cut to its borrowers.  image002

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 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.

When should I switch home loans?

The answer to this question is dependent on your personal circumstances – there is no best time for refinancing that will apply to everyone.

If you want a lower interest rate but are happy with the other aspects of your loan it may be worth calling your lender to see if you can negotiate a better deal. If you have some equity up your sleeve – at least 20 per cent – and have done your homework to see what other lenders are offering new customers, pick up the phone to your bank and negotiate. If they aren’t prepared to offer you lower rate or fees, then you’ve already done the research, so consider switching.

What is the best interest rate for a mortgage?

The fastest way to find out what the lowest interest rates on the market are is to use a comparison website.

While a low interest rate is highly preferable, it is not the only factor that will determine whether a particular loan is right for you.

Loans with low interest rates can often include hidden catches, such as high fees or a period of low rates which jumps up after the introductory period has ended.

To work out the best value for money, have a look at a loan’s comparison rate and read the fine print to get across all the fees and charges that you could be theoretically charged over the life of the loan.

Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out. 

Can I get a home loan if I am on an employment contract?

Some lenders will allow you to apply for a mortgage if you are a contractor or freelancer. However, many lenders prefer you to be in a permanent, ongoing role, because a more stable income means you’re more likely to keep up with your repayments.

If you’re a contractor, freelancer, or are otherwise self-employed, it may still be possible to apply for a low-doc home loan, as these mortgages require less specific proof of income.

Will I have to pay lenders' mortgage insurance twice if I refinance?

If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.