RBA cuts rates to 0.10%, extends QE

RBA cuts rates to 0.10%, extends QE

The RBA has made the historic decision to cut the cash rate by 0.15 per cent today, slashing official rates to 0.10 per cent.

The RBA has also announced a range of other measures including buying $100 billion in government bonds and reducing the cost of funding.

RateCity.com.au analysis shows the average mortgage holder with a $400,000 loan could see their minimum monthly mortgage repayments fall by $33 per month if their lender passes it on in full.

Impact of today’s 0.15 per cent cut if passed on in full

  0.15% cut
Loan size Monthly savings Annual savings

$400,000

$33

$391

$500,000

$41

$489

$750,000

$61

$734

$1,000,000

$82

$979

Source: RateCity.com.au. Assumes an owner occupier paying principal and interest over 30 years. This scenario is based on the current average rate of 3.19 per cent.

Already, Athena Home Loans has announced they are passing on the full cut to both new and existing variable customers.

Meanwhile, Reduce Home Loans has claimed the new lowest rate of 1.77 per cent for owner occupiers with a 60 per cent loan-to-value ratio, but only for new customers.

Sally Tindall, research director at RateCity.com.au, said: “As our economy starts to re-open, along with our borders, this move from the RBA is intended to help people get jobs, assist businesses and provide people in financial distress with some rate relief.”

“Today’s announcement puts immense pressure on the banks to pass it on to their existing variable home loan customers,” she said.

“Around half a million mortgages were deferred at some point during COVID, and those families are unlikely to be in a position to refinance. These are the people who need a rate cut.

“A rate cut could save the average home loan customer $33 per month, which may seem like small change to some people, but for families struggling to make ends meet it could be the lifeline they need.

“At this stage the big banks appear to be playing a game of chicken with no announcements as to whether they will pass it on to their customers.

“Call your bank, find out what they intend to do. If they don’t pass on a full cut, shop around in what remains an extremely competitive market,” she said.

Impact to savings rates

RateCity analysis shows the average ongoing savings rate is now 0.52 per cent. This could fall to below 0.40 per cent on the back of today’s rate cut.

“The outlook for savers has just turned from gloomy to bleak, with another RBA cut today and no prospect of a rate rise for at least the next three years,” she said.

“Already a handful of banks are offering no interest on some savings accounts. While the big banks will desperately want to avoid cutting their base rates down to 0 per cent, it can’t be ruled out,” she said.

Lender Cuts New lowest variable Effective date
Athena Home Loans 0.15% 2.19% November 3
Mortgage House 0.15% - new customers only 1.94% November 15
Homestar Finance 0.15% - new customers only 1.79% November 3
Reduce Home Loans 0.12% to 0.20% - new customers only 1.77% November 3

 

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What is a specialist lender?

Specialist lenders, also known as non-conforming lenders, are lenders that offer mortgages to ‘non-vanilla’ borrowers who struggle to get finance at mainstream banks.

That includes people with bad credit, as well as borrowers who are self-employed, in casual employment or are new to Australia.

Specialist lenders take a much more flexible approach to assessing mortgage applications than mainstream banks.

What is the amortisation period?

Popularly known as the loan term, the amortisation period is the time over which the borrower must pay back both the loan’s principal and interest. It is usually determined during the application approval process.

What is bridging finance?

A loan of shorter duration taken to buy a new property before a borrower sells an existing property, usually taken to cover the financial gap that occurs while buying a new property without first selling an older one.

Usually, these loans have higher interest rates and a shorter repayment duration.

What do mortgage brokers do?

Mortgage brokers are finance professionals who help borrowers organise home loans with lenders. As such, they act as middlemen between borrowers and lenders.

While bank staff recommend home loan products only from their own employer, brokers are independent, so they can recommend products from a range of institutions.

Brokers need to be accredited with a particular lender to be able to work with that lender. A typical broker will be accredited with anywhere from 10 to 30 lenders – the big four banks, as well as a range of smaller banks, credit unions and non-bank lenders.

As a general rule, brokers don’t charge consumers for their services; instead, they receive commissions from lenders whenever they place a borrower with that institution.

Mortgage Calculator, Property Value

An estimate of how much your desired property is worth. 

What is the average annual percentage rate?

Also known as the comparison rate, or sometimes the ‘true rate’ of a loan, the average annual percentage rate (AAPR) is used to indicate the overall cost of a loan after considering all the fees, charges and other factors, such as introductory offers and honeymoon rates.

The AAPR is calculated based on a standardised loan amount and loan term, and doesn’t include any extra non-standard charges.

Who offers 40 year mortgages?

Home loans spanning 40 years are offered by select lenders, though the loan period is much longer than a standard 30-year home loan. You're more likely to find a maximum of 35 years, such as is the case with Teacher’s Mutual Bank

Currently, 40 year home loan lenders in Australia include AlphaBeta Money, BCU, G&C Mutual Bank, Pepper, and Sydney Mutual Bank.

Even though these lengthier loans 35 to 40 year loans do exist on the market, they are not overwhelmingly popular, as the extra interest you pay compared to a 30-year loan can be over $100,000 or more.

Does Real Time Ratings' work for people who already have a home loan?

Yes. If you already have a mortgage you can use Real Time RatingsTM to compare your loan against the rest of the market. And if your rate changes, you can come back and check whether your loan is still competitive. If it isn’t, you’ll get the ammunition you need to negotiate a rate cut with your lender, or the resources to help you switch to a better lender.

Mortgage Calculator, Deposit

The proportion you have already saved to go towards your home. 

Monthly Repayment

Your current monthly home loan repayment. To accurately calculate how much you could save, an accurate payment figure is required. If you are not certain, check your bank statement.

How can I get a home loan with no deposit?

Following the Global Financial Crisis, no-deposit loans, as they once used to be known, have largely been removed from the market. Now, if you wish to enter the market with no deposit, you will require a property of your own to secure a loan against or the assistance of a guarantor.

How does a redraw facility work?

A redraw facility attached to your loan allows you to borrow back any additional repayments that you have already paid on your loan. This can be a beneficial feature because, by paying down the principal with additional repayments, you will be charged less interest. However you will still be able to access the extra money when needed.

Why should you trust Real Time Ratings?

Real Time Ratings™ was conceived by a team of data experts who have been analysing trends and behaviour in the home loan market for more than a decade. It was designed purely to meet the evolving needs of home loan customers who wish to merge low cost with flexible features quickly. We believe it fills a glaring gap in the market by frequently re-rating loan products based on the changes lenders make daily.

Real Time Ratings™ is a new idea and will change over time to match the frequently-evolving demands of the market. Some things won’t change though – it will always rate all relevent products in our database and will not be influenced by advertising.

If you have any feedback about Real Time Ratings™, please get in touch.

How much are repayments on a $250K mortgage?

The exact repayment amount for a $250,000 mortgage will be determined by several factors including your deposit size, interest rate and the type of loan. It is best to use a mortgage calculator to determine your actual repayment size.

For example, the monthly repayments on a $250,000 loan with a 5 per cent interest rate over 30 years will be $1342. For a loan of $300,000 on the same rate and loan term, the monthly repayments will be $1610 and for a $500,000 loan, the monthly repayments will be $2684.