Reduce Home Loans brings record low mortgage interest rate down to 1.90%

Reduce Home Loans brings record low mortgage interest rate down to 1.90%

Non-bank lender Reduce Home Loans has today rolled out an introductory mortgage interest rate of 1.90 per cent, smashing the lowest fixed rate record in Australia.

Reduce is the ninth mortgage lender to drop owner-occupier interest rates to below 2 per cent, as competition between home loan lenders continue to rage on.

    

While the new home loan is the lowest fixed rate for an owner-occupier in Australia, the loan reverts to a 2.39 per cent variable rate after the first year. Borrowers may also be eligible for a loyalty discount of 0.09 per cent after five years.

The loan has a comparison rate of 2.39 per cent, and is available to those with a loan-to-value ratio (LVR) of up to 80 per cent. The maximum loan amount is $850,000.

How much could you save by refinancing to a 1.90 per cent rate?

A RateCity analysis found that by switching to the new lowest fixed rate, an average mortgage holder could potentially pocket back thousands in the first year, with fees factored in.

If an owner-occupier on the Reserve Bank of Australia’s average existing owner-occupier rate of 3.25 per cent with a $400,000 balance and 25 years remaining on the loan term switched to Reduce’s 1.90 per cent home loan, they could potentially:

  • save $4,306 in the first year,
  • save $7,676 in the first two years,
  • save $17,363 in the first five years, and
  • save $57,721 over the life of the loan.

Sally Tindall, RateCity’s research director, said the low interest rate environment meant that home loan rate records are being reset regularly. But she warned borrowers to do their research when applying for honeymoon rates.

“This is a record-breaking low rate, designed to attract people’s attention in an extremely competitive market. But as with any introductory deal, do the maths to make sure you’re still ahead after a few years,” she said.

“With the big four banks offering fixed rates in the low twos, the online lenders have got little choice but to keep cutting rates.”

Owner-occupier mortgage interest rates on the decline

While 81 mortgage lenders have an owner-occupier rate of below 2.5 per cent on the RateCity database, the list of home loan rates starting with a one is steadily growing.

Within the past two months, nine mortgage lenders have introduced sub-2 per cent interest rates.

Ms Tindall said while home loans under 2 per cent are becoming more common, the lenders offering these deals are becoming “increasingly particular about who qualifies for them”.

“Most of the sub 2 per cent rates have their fair share of terms and conditions so read them carefully to make sure you qualify,” she said.

“Broadly speaking, owner-occupiers with a steady job and a decent amount of equity in their loan are sitting in the driver’s seat when it comes to rate.”

The first lender to bring a home loan rate below 2 per cent was Bank of Us in late June, though that offer was only open to Tasmanian residents. 

Most recently, People’s Choice Credit Union was the latest to join the sub-2 per cent club, when it reduced its one-year fixed rate to 1.99 per cent (comparison rate 3.91 per cent) less than two weeks ago. 

Meanwhile, ME Bank cut its owner-occupier variable rate by up to 0.59 per cent to as low as 2.58 per cent (comparison rate 2.60 per cent) for new and refinancing customers last Friday. It is the lowest advertised variable rate ME has offered.

Lenders offering rates under 2%

Lender Loan product Advertised Rate
Reduce Home Loans Fixed (intro rate 1 year) 1.90%
Easy Street Financial Services Variable (loans over $750K) 1.95%
Homestar Finance 1-year fixed 1.98%
Bank First 3-year fixed 1.99%
Community First Credit Union 2-year fixed 1.99%
Loans.com.au Variable (intro rate 1 year) 1.99%
People’s Choice Credit Union 1-year fixed 1.99%
Bank of Us 1-year fixed (Tasmania only) 1.99%
Hume Bank 3-year fixed (Local postcodes only) 1.99%

Source: RateCity.com.au.
Note: Hume Bank rate is only available to new loans for renovation or construction of new properties within 150 km of Albury Post Office. Loans.com.au product is an introductory variable rate – 1.99% for one year after which it reverts to 2.57%. Data accurate as of August 31, 2020.

Big four banks – lowest rates

Lender Advertised variable Advertised

2-yr fixed

Advertised

3-yr fixed

CBA

2.79%

2.29%

2.29%

Westpac*

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. Data accurate as of August 31, 2020.

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Learn more about home loans

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 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 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 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.

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.

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.

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 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.

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).

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.

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.