October update: RBA cuts cash rate by 25 basis points
The Reserve Bank of Australia has announced today it will cut the official cash rate by 25 basis points, dropping to 3.25 percent, the lowest point in three years.
It’s great news for many families with a variable rate mortgage, particularly as the expensive holiday season approaches. But RateCity warns that not all households will enjoy the rate reprieve.
RateCity urges variable rate home loan customers to keep an eye on their rate, as lenders will keep some of the rate cuts from their variable home loan customers.
We don’t expect many lenders will pass on the full 25 basis points cut. After the last two rate cuts where the Reserve Bank dropped the cash rate by a total of 75 basis points in May and June, lenders dropped their standard variable home loan rates by an average of 53 basis points, keeping 22 basis points from their customers.
That’s why it’s so important for borrowers to keep track of their money and compare home loans online at RateCity to make sure they are getting a good deal.
What to do if your lender doesn’t cut rates
Let’s assume for a minute that not all lenders do pass on reductions. If you’re an existing variable rate mortgage customer – that’s about 2.5 million households – here’s a simple guide on what to do next.
- Before you think about switching, check whether you have sufficient equity in your home. Remember if you have less than 20 percent equity, many lenders will require you to take out Lenders Mortgage Insurance. Not only will you have to incur this cost, you’re unlikely get the most attractive refinancing offers, because your low level of equity by definition makes the deal riskier for a lender than if you own more of your home.
- See what the absolute rate and fees are compared to others. If your lender doesn’t lower rates, but are still better than alternatives, while you might be angry at them for not passing on the rate cut, there’s not much point in switching.
- Look at and talk to some alternatives. Right now, you’d be surprised at how much lenders are willing to negotiate against advertised rates. If you’ve got more than 20 percent equity, then most lenders will be desperate for your business, so use this as an excuse to demand a discount against advertised rate.
- We’ve launched a new version of our home loans calculator that we think is industry-leading. Instead of just being able to put in details of a hypothetical home loan, you can now select an actual home loan product that’s available on the site, and see what it looks like in the calculator. You can vary the amount borrowed, time to repay and monthly repayments for actual products to see your savings or extra costs. Give it a try; we’d love to get your feedback.