May update: RBA cuts the cash rate to 2.75 percent
The Reserve Bank of Australia has cut interest rates by 0.25 percentage points at its board meeting today, bringing the cash rate to 2.75 percent – the lowest level in its history.
Alex Parsons, chief executive of RateCity, said despite the low cash rate, many variable home loan customers are paying higher rates above the cash rate compared to the past.
“Today’s cash rate drop by the Reserve Bank is great news for variable borrowers if lenders pass on the full cut to their customers. With today’s cut making it the seventh since November 2011, variable rate borrowers, which are the majority of the home loan market, are paying much more interest compared to the cash rate,” he said.
RateCity data shows that the gap between the benchmark standard variable rate (6.42 percent) – the average of the major four banks – and the cash rate has almost doubled (88 percent) over the past decade.
Now is the time to demand a discount
While interest rates are low, many borrowers with variable rate home loans may become complacent. But, says Parsons, borrowers should be using this time to ensure they have a competitive deal by comparing home loans online and demanding a discount.
“Borrowers may not realise that there are over 100 other lenders outside of the major four banks in RateCity’s database, and many with more competitive deals and lower spreads than the big four banks,” he said. “For instance, State Custodians and Loans.com.au both currently hold the lowest variable home loan rate at 4.99 percent, which is 1.99 percentage points above the cash rate.”
“So borrowers need to keep a close eye on their lender, compare their home loan to other lenders at RateCity.com.au and make sure they receive the discount they deserve or take their business elsewhere.”