Variable rates hit new record low ahead of RBA meeting

Variable rates hit new record low ahead of RBA meeting

While the cash rate is set to remain at 0.25 per cent at this Tuesday’s RBA meeting, home loan rates continue to fall, with a new record low variable rate of 2.29 per cent.

Low cost lender Homestar Finance has dropped the rate on its Star Gold Home Loan to just 2.29 per cent, the lowest advertised variable rate on the market, although the rate is reserved for refinancers in metro areas who have paid down at least 40 per cent of their loan.

What lenders have done since 1 April:

  • More than 50 lenders cut at least one variable rate for new customers.
  • New lowest variable rate is 2.29%.
  • Almost 60 lenders cut at least one fixed rate.
  • Lowest fixed rate is 2.09%.

RateCity.com.au research director Sally Tindall said the rate drops showed there was still plenty of fire in the market despite the challenges thrown up by COVID-19.

“The cash rate might have settled in at 0.25 per cent but competition between the lenders has continued to put downward pressure on home loan rates,” she said.

“We’ve already seen fixed rates hit record lows of just 2.09 per cent, while the lowest variable rate is now 2.29 per cent.

“This will put pressure on other lenders to shave their lowest variable rates. This kind of competition is great for homeowners in a position to refinance, because lenders are willing to do battle for their business,” she said.

APRA’s monthly banking statistics for March 2020 released this week showed that challenger banks such as Macquarie Bank and HSBC were continuing to grow their loan books.

“Year-on-year Macquarie Bank has increased its home loan book by an impressive 31 per cent according to APRA’s March 2020 data. That’s a significant feat in what has been a challenging home lending market,” she said.

Lowest variable rates on RateCity.com.au

Lender Product Advertised rate
Homestar Finance Star Gold Home Loan 2.29%
Reduce Home Loans Rate Slasher Home Loan 2.39%
Well Home Loans Well Balanced Loan 2.47%

Note: Above rates are for owner-occupiers paying principal and interest. Homestar Finance Star Gold loan is only available for loans of up to $500K in metro areas, with an LVR or 60%.

Lowest 2-year fixed rates on RateCity.com.au

Lender Advertised rate
ING

2.09%

Reduce Home Loans

2.09%

Well Home Loans

2.09%

Lowest 3-year fixed rates on RateCity.com.au

Lender Advertised rate
Reduce Home Loans

2.09%

Well Home Loans

2.09%

ING

2.14%

Lowest 5-year fixed rates on RateCity.com.au

Lender Advertised rate
RACQ Bank

2.49%

ING

2.54%

UBank

2.59%

Note: above rates are for owner occupiers paying principal and interest.

APRA Monthly Banking Statistics, March 2020

  Housing loans to households ($M) Year-on-year change in home loans % Current share of home loan market (ADI's) %
Commonwealth Bank of Australia

$449,099

4.67%

25.65%

Westpac Group

$408,070

-0.03%

23.31%

NAB

$261,666

-0.15%

14.94%

ANZ

$245,732

-1.60%

14.03%

ING Bank Australia

$51,365

4.70%

2.93%

Macquarie Bank

$47,417

31.17%

2.71%

Bendigo and Adelaide Bank

$43,972

8.37%

2.51%

Suncorp-Metway

$43,252

0.35%

2.47%

Bank of Queensland

$28,692

2.32%

1.64%

HSBC Bank Australia

$21,288

22.45%

1.22%

Released 30 April 2020. Share of market includes all authorised deposit taking institutions (ADI’s) but excludes non-bank lenders. Housing loans includes owner occupier and investor loans combined.

 

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Learn more about home loans

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 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 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 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 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 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.

What is a split home loan?

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.

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.

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.

Does Australia have no-deposit home loans?

Australia no longer has no-deposit home loans – or 100 per cent home loans as they’re also known – because they’re regarded as too risky.

However, some lenders allow some borrowers to take out mortgages with a 5 per cent deposit.

Another option is to source a deposit from elsewhere – either by using a parental guarantee or by drawing out equity from another property.

Who has the best home loan?

Determining who has the ‘best’ home loan really does depend on your own personal circumstances and requirements. It may be tempting to judge a loan merely on the interest rate but there can be added value in the extras on offer, such as offset and redraw facilities, that aren’t available with all low rate loans.

To determine which loan is the best for you, think about whether you would prefer the consistency of a fixed loan or the flexibility and potential benefits of a variable loan. Then determine which features will be necessary throughout the life of your loan. Thirdly, consider how much you are willing to pay in fees for the loan you want. Once you find the perfect combination of these three elements you are on your way to determining the best loan for you. 

Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.