Westpac and ANZ round out the Big Four cuts

Westpac and ANZ round out the Big Four cuts

The last of the Big Four Banks have finally handed down their rate decisions with Westpac and ANZ both announcing cuts within minutes of each other.

Westpac and its subsidiaries – St.George Bank, Bank of Melbourne and BankSA – have cut headline variable home loan rates by 0.15 per cent, for both owner-occupiers and investors. The changes take effect on 16 October.

ANZ has cut variable rates by 0.14 per cent, effective 11 October.

Westpac and ANZ’s rate cuts follow similar announcements yesterday made by CBA and NAB, which will cut variable home loan rates by 0.13 per cent and 0.15 per cent, respectively.

 

Rate cut

Date effective

CBA

0.13%

22 October

Westpac

0.15%

16 October

NAB

0.15%

11 October

ANZ

0.14%

11 October

Paul Marshall, chief executive at RateCity.com.au said: “The Big Four Banks have only chosen to pass on a fraction of the rate cuts. Although disappointing, it’s not unexpected.”

“The banks have gone against the Treasurer’s wishes by passing on just 0.14 per cent of the RBA’s rate cut on average, and home loan customers will rightly feel frustrated at this decision.

“Now that the Big Four Banks have all made their move, we expect a flurry of other lenders to begin announcing their cuts.

“New customers are still getting the sharpest home loan rates, so if you’re not happy with what your bank has passed on you can get yourself a better rate cut by taking your business elsewhere.”

Impact of 0.15% Westpac rate cut

       

Westpac

Old rate

New rate

Savings per month

Missed savings per month

Savings per year

Missed savings per year

Standard Variable Rate

4.98%

4.83%

$36

$24

$438

$290

Discounted Variable Rate

3.64%

3.49%

$34

$22

$404

$267

Lowest variable rate

3.38%

3.23%

$33

$21

$397

$262

Source: RateCity.com.au. Note: The rates are for owner-occupiers paying principal and interest on a $400,000 loan over 30 years. Missed savings are calculated based on what a customer would have saved if Westpac had passed on the full rate cut of 0.25 per cent.

Impact of 0.14% ANZ rate cut

       

ANZ

Old rate

New rate

Savings per month

Missed savings per month

Savings per year

Missed savings per year

Standard Variable Rate

4.93%

4.79%

$34

$26

$408

$318

Discounted Variable Rate

4.13%

3.99%

$32

$25

$389

$303

Lowest variable rate

3.38%

3.24%

$30

$24

$370

$288

Source: RateCity.com.au. Note: The rates are for owner-occupiers paying principal and interest on a $400,000 loan over 30 years. Missed savings are calculated based on what a customer would have saved if ANZ had passed on the full rate cut of 0.25 per cent.

Big Four Banks variable rates – state of play

 

Standard Variable Rate

Discounted Variable Rate

Lowest variable rate

CBA

4.80%

4.30%

3.22%

Westpac

4.83%

3.49%

3.23%

NAB

4.77%

3.92%

3.20%

ANZ

4.79%

3.99%

3.24%

Note: Rates are based on owner-occupier paying principal and interest.

Find out who is passing on the cut and by how much in RateCity’s live rate cut list

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Learn more about home loans

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 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 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 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 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 average annual percentage rate?

Also known as the comparison rate, or sometimes the ‘true rate’ of a loan, the average annual percentage rate (AAPR) is used to indicate the overall cost of a loan after considering all the fees, charges and other factors, such as introductory offers and honeymoon rates.

The AAPR is calculated based on a standardised loan amount and loan term, and doesn’t include any extra non-standard charges.

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.

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out. 

Can I get a home loan if I am on an employment contract?

Some lenders will allow you to apply for a mortgage if you are a contractor or freelancer. However, many lenders prefer you to be in a permanent, ongoing role, because a more stable income means you’re more likely to keep up with your repayments.

If you’re a contractor, freelancer, or are otherwise self-employed, it may still be possible to apply for a low-doc home loan, as these mortgages require less specific proof of income.

Will I have to pay lenders' mortgage insurance twice if I refinance?

If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.

Is there a limit to how many times I can refinance?

There is no set limit to how many times you are allowed to refinance. Some surveyed RateCity users have refinanced up to three times.

However, if you refinance several times in short succession, it could affect your credit score. Lenders assess your credit score when you apply for new loans, so if you end up with bad credit, you may not be able to refinance if and when you really need to.

Before refinancing multiple times, consider getting a copy of your credit report and ensure your credit history is in good shape for future refinances.

I have a poor credit rating. Am I still able to get a mortgage?

Some lenders still allow you to apply for a home loan if you have impaired credit. However, you may pay a slightly higher interest rate and/or higher fees. This is to help offset the higher risk that you may default on your repayments.