RBA cash rate held again, housing prices continue to skyrocket

RBA cash rate held again, housing prices continue to skyrocket

The Reserve Bank of Australia has held the cash rate at a record-low of 0.10 per cent again at its Monetary Policy Board Meeting today.

The Reserve Bank of Australia (RBA)’s decision today to hold has been attributed to maintaining “highly supportive monetary conditions” until its goals are achieved, according to a statement by RBA Governor, Philip Lowe.

“The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range,” said Governor Lowe.

The RBA cut the cash rate three times in 2020, with one emergency cut mid-month necessary in March to respond to the economic impacts of Covid-19.

Meanwhile, housing prices are continuing to rise across the country, partially fuelled by the current low interest rate environment.

CoreLogic data released yesterday showed that national property prices grew at the fastest recorded rate since 2003 in February 2020. Nationally, dwelling values grew by 2.1 per cent over the shortest month of the year, with Sydney and Hobart both seeing capital city dwelling values spike by 2.5 per cent.

“Fomo” and low rates to blame

In a SMH article today, AMP Capital chief economist, Shane Oliver, attributed “government incentives, the unleashing of pent-up demand, the removal of responsible-lending obligations and a ‘fear of missing out’” to the surge in property market activity.

“The acceleration in home prices is likely to be starting to concern the RBA – but with average prices only just surpassing their 2017 high, growth in housing debt remaining relatively subdued at 3.6 per cent year-on-year and little evidence of a significant deterioration in lending standards at present, it and APRA are unlikely to reach for the macro-prudential lever just yet”.

New home lending also hit $28.75 billion in January, an increase of 44 per cent year-on-year (in seasonally-adjusted terms), according to the latest figures from the Australian Bureau of Statistics (ABS). ABS figures also found that the total value of owner-occupier home loans settled in January grew to a record high of $22.11 billion - up 52 per cent, year-on-year.

RateCity research director, Sally Tindall, said ultra-low interest rates have “put a rocket under the property market and it’s showing no signs of slowing down.”

“While low rates are driving current prices north, predictions of up to 20 per cent property price rises over the next couple of years are pushing people to panic buy,” said Ms Tindall.

“First it was toilet paper, now it’s property. People are rattled because they don’t want to miss out.”

How home loan rates have moved

Speaking on the housing market and current low interest rate environment, RBA Governor, Philip Lowe said: “Lending rates for most borrowers are at record lows and housing prices across Australia have increased recently.”

“Housing credit growth to owner-occupiers has picked up, but investor and business credit growth remain weak. Lending standards remain sound, and it is important that they remain so in an environment of rising housing prices and low interest rates,” said Governor Lowe.

According to the RateCity database, 40 lenders have cut 606 fixed and variable home loan rates since 1 January 2020.

Further, 14 lenders have hiked 63 home loan rates in the same time period. Currently 56 lenders are offering 151 home loan rates under 2 per cent.

If you’re looking to nab a low-rate home loan, it may be worth comparing your options – especially if you’re a refinancer. There are a range of deals on the market suited to refinancers, particularly those with LVRs under 80 per cent.

Lowest variable, owner-occupier home loan rates (principal & interest) on RateCity database 

Lender Home loan Advertised rate Comparison Rate
Reduce Home Loans Rate Cutter (LVR < 60%) 1.79% 1.88%
Homestar Finance Star Gold (LVR < 60%) 1.79% 1.84%
Pacific Mortgage Group Standard Variable (LVR < 60%) 1.89% 1.89%
Northern Inland Credit Union Dream Value Package (LVR < 60%) 1.89% 2.28%
Easy Street Financial Services Standard Variable Home Loan Offer (>$750k) 1.95% 1.99%
Freedom Lend Freedom Variable Home Loan (LVR < 70%) 1.97% 1.97%

Source: RateCity.com.au. Data accurate as of 02.03.2021.

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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.

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

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. 

How is interest charged on a reverse mortgage from IMB Bank?

An IMB Bank reverse mortgage allows you to borrow against your home equity. You can draw down the loan amount as a lump sum, regular income stream, line of credit or a combination. The interest can either be fixed or variable. To understand the current rates, you can check the lender’s website.

No repayments are required as long as you live in the home. If you sell it or move to a senior living facility, the loan must be repaid in full. In some cases, this can also happen after you have died. Generally, the interest rates for reverse mortgages are higher than regular mortgage loans.

The interest is added to the loan amount and it is compounded. It means you’ll pay interest on the interest you accrue. Therefore, the longer you have the loan, the higher is the interest and the amount you’ll have to repay.

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.

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 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.

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.

How much deposit do I need for a home loan from ANZ?

Like other mortgage lenders, ANZ often prefers a home loan deposit of 20 per cent or more of the property value when you’re applying for a home loan. It may be possible to get a home loan with a smaller deposit of 10 per cent or even 5 per cent, but there are a few reasons to consider saving a larger deposit if possible:

  • A larger deposit tells a lender that you’re a great saver, which could help increase the chances of your home loan application getting approved.
  • The more money you pay as a deposit, the less you’ll have to borrow in your home loan. This could mean paying off your loan sooner, and being charged less total interest.
  • If your deposit is less than 20 per cent of the property value, you might incur additional costs, such as Lenders Mortgage Insurance (LMI).

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 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 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 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 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*