The state of play post-RBA

The state of play post-RBA

None of the big four banks have committed to passing on Tuesday’s RBA rate cut to their variable customers, leaving millions of mortgage holders out in the cold.

CBA, Westpac, NAB and ANZ instead played a game of cat and mouse with their announcements, hurdling each other at the finish line to offer the new lowest fixed rates. 

As a result Westpac, and its subsidiaries St George and Bank of Melbourne, now have the lowest fixed home loan rate in the country at 1.89 per cent for four years. (Note: These rates are for people with larger deposits which attract a discount of up to 0.10 per cent. The rates announced by Westpac yesterday were based on an 80 per cent LVR). 

Big four banks – lowest owner-occupier fixed rates 

  CBA Westpac NAB  ANZ
1 year fixed

2.19%

1.99%

2.19% 

2.09%

2 year fixed

2.14%

1.99%

2.09%

2.09%

3 year fixed

2.14%

1.99%

2.09%

2.09%

4 year fixed

1.99%

1.89%

1.98%

2.29%

5 year fixed

2.99%

2.69%

2.79%

2.29%

Source: RateCity.com.au. Note: Westpac's rates are for a LVR of 70%. St George and Bank of Melbourne rates are for an LVR of 60%.

RateCity.com.au research director, Sally Tindall, said the majority of banks have now failed to pass on the last two RBA rate cuts. 

“Most existing variable rate customers have missed out on a total rate cut of half a per cent this year,” she said.

“Governor Lowe had said a rate reduction would help address problem loans, but the banks’ refusal to pass on these cuts means people in financial strife aren’t likely to be getting any rate relief.

“Instead they’re stuck in mortgage prison clocking up an almighty interest bill. 

“Anyone lucky enough to be in a position to refinance who missed out on a rate cut should snub their bank back by taking their mortgage walking.

“This latest round of so called ‘cuts’ from the banks confirms loyalty is dead and buried.

“If the average owner occupier switched to one of the lowest rates on the market they could potentially save over $20,000 in the first five years of refinancing. 

“What we know now is that variable rates aren’t going to drop by themselves. If you want rate relief, you have to take action yourself,” she said.

 

How much homeowners could save by refinancing

  Savings after 1 year Savings after 5 years
Refinancing to the lowest variable rate (1.77%)

$4,140

$24,977

Refinancing to the lowest fixed rate (1.89% for 4 yrs)

$7,290

$20,303

Notes: Based on an owner occupier paying principal and interest with a $400K loan balance refinancing 5 years into a 30 year loan. The existing customer rate is 3.16%. Assumes the fixed rate reverts to the discounted variable rate after the 4th yr. LVR requirements apply. Cost is based on interest paid, fees and sign up bonus offered.

 

Lowest ongoing variable rates on RateCity.com.au

Lender Rate
Reduce Home Loans 1.77%
Homestar Finance 1.79%
Pacific Mortgage Group 1.89%

Note: the above loans all require a loan-to-value ratio of under 60%.

 

Lowest 1 year fixed rates on RateCity.com.au

Lender Rate
Homestar Finance 1.98%
Westpac/ St George/ Bank of Melbourne* 1.99%
Greater Bank 1.99%

 

Lowest 2 year fixed rates on RateCity.com.au

Lender Rate
Westpac/ St George/ Bank of Melbourne* 1.99%
Illawarra Credit Union 1.99%
Hume Bank 2.04%

 

Lowest 3 year fixed rates on RateCity.com.au

Lender Rate
Bank First 1.99%
Westpac/ St George/ Bank of Melbourne* 1.99%
Homestar Finance 2.06%

 

Lowest 4 year fixed rates on RateCity.com.au

Lender Rate
Westpac/ St George/ Bank of Melbourne* 1.89%
NAB 1.98%
CBA 1.99%

 

Lowest 5 year fixed rates on RateCity.com.au

Lender Rate
ANZ 2.29%
Citi 2.39%
BankVic / Virgin Money 2.49%

Source: RateCity.com.au. *Westpac Group rates are for loans with a loan-to-value ratio of under 70%.

 

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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 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 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 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.

Do other comparison sites offer the same service?

Real Time RatingsTM is the only online system that ranks the home loan market based on your personal borrowing preferences. Until now, home loans have been rated based on outdated data. Our system is unique because it reacts to changes as soon as we update our database.

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.

How common are low-deposit home loans?

Low-deposit home loans aren’t as common as they once were, because they’re regarded as relatively risky and the banking regulator (APRA) is trying to reduce risk from the mortgage market.

However, if you do your research, you’ll find there is still a fairly wide selection of banks, credit unions and non-bank lenders that offers low-deposit home loans.

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.

What is a redraw fee?

Redraw fees are charged by your lender when you want to take money you have already paid into your mortgage back out. Typically, banks will only allow you to take money out of your loan if you have a redraw facility attached to your loan, and the money you are taking out is part of any additional repayments you’ve made. The average redraw fee is around $19 however there are plenty of lenders who include a number of fee-free redraws a year. Tip: Negative-gearers beware – any money redrawn is often treated as new borrowing for tax purposes, so there may be limits on how you can use it if you want to maximise your tax deduction.

How is the flexibility score calculated?

Points are awarded for different features. More important features get more points. The points are then added up and indexed into a score from 0 to 5.

What is an ombudsman?

An complaints officer – previously referred to as an ombudsman -looks at formal complaints from customers about their credit providers, and helps to find a fair and independent solution to these problems.

These services are handled by the Australian Financial Complaints Authority, a non-profit government organisation that addresses and resolves financial disputes between customers and financial service providers.

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.

Mortgage Calculator, Loan Term

How long you wish to take to pay off your loan. 

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.