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Westpac cuts variable intro rate to 1.99% but hikes fixed rates

Westpac cuts variable intro rate to 1.99% but hikes fixed rates

Westpac has today become the first big four bank to offer a variable home loan rate under 2 per cent, however the rate is only introductory.

Australia’s second largest lender slashed its basic variable rates by 0.20 per cent for both owner-occupiers and investors paying principal and interest.

This takes Westpac’s lowest variable rate to 1.99 per cent for 2 years, reverting to 2.49 per cent thereafter. 

Today’s cuts extend beyond the group’s flagship brand – St. George, Bank of Melbourne and BankSA have all dropped their basic variable rates by 0.20 per cent. The subsidiaries also cut their 2-year fixed rates by 0.10 per cent.

However, it wasn’t all good news for people on the hunt for a new home loan. The group hiked its 4- and 5-year fixed rates by 0.30 per cent.

Westpac rate changes

Owner-occupiers paying principal and interest, 70% loan -to-value ratio or less

Rate typeOld lowest rateNew lowest rateChange
Basic variable loan (Flexi First)2.19% for 2 years, then 2.69%1.99% for 2 yrs, then 2.49%-0.20%
4 yr fixed2.19%2.49%+0.30%
5 yr fixed2.49%2.79%+0.30%

St. George, Bank of Melbourne rate changes

Owner-occupiers paying principal and interest, 60% loan-to-value ratio or less

Rate typeOld lowest rateNew lowest rateChange
Basic variable loan2.44%2.24%-0.20%
2 yr fixed1.89%1.79%-0.10%
4 yr fixed2.19%2.49%+0.30%
5 yr fixed2.49%2.79%+0.30%

For a full list of rate changes for owner occupiers and investors with different deposit sizes please contact us.

Analysis of the RateCity.com.au database shows while the majority of changes for fixed rates were hikes, particularly in the longer terms of 3 years and above, it was a completely different story for variable rates. 

In the last two months, 54 lenders have cut at least one variable rate, while just 10 lenders have made hikes to variable rates.

Lenders that have moved at least one fixed rate in the last 2 months 

(25 June to 24 Aug 2021)

Lenders that have cutLenders that have hikedCurrent lowest rate
Variable 5410

1.77% 

1 yr fixed2120

1.69% 

2 yr fixed2725

1.79% 

3 yr fixed1929

1.85% 

4 yr fixed625

2.14% 

5 yr fixed1026

2.27% 

Source: RateCity.com.au. Note some lenders have moved more than one rate.

RateCity.com.au research director, Sally Tindall said: “Westpac is looking for a bigger slice of the refinancing pie, which hit a record of more than $16 billion in the month of June according to the latest ABS figures.”

“Westpac is the first big four bank to offer a variable home loan rate starting with a ‘1’, and while the discount is only for the first two years, it reverts to a rate that’s still lower than its big four bank competitors,” she said.

“The bank was already competing fiercely in most fixed rate categories. Now it’s chasing variable rate customers who want both low rates and flexibility.

“While fixed rates are, by and large, on the rise, we are still seeing more cuts to variable rates than hikes, because for most banks, its typically the one place left with fat to cut.

“The variable rate cut from Westpac is reserved for new customers, however, that shouldn’t stop existing customers from picking up the phone and asking for a lower rate,” she said.

Lowest big four bank owner-occupier home loan rates

CBAWestpac*NAB ANZ
1 yr fixed

2.09%

1.99%

2.09% 

2.04%

2 yr fixed

1.99%

1.89%

1.99%

1.94%

3 yr fixed

2.19%

1.98%

2.08%

2.04%

4 yr fixed

2.29%

2.49%

2.24%

2.49%

5 yr fixed

2.99%

2.79%

2.49%

2.69%

Variable

2.69%

1.99% for 2 yrs then 2.49%

2.69%

2.72%

Source: RateCity.com.au. *Note: Westpac's rates are for a loan to value ratio of up to 70%. 

Lowest rates on the RateCity.com.au database

LenderRate
1 yr fixedGreater Bank

1.69%

2 yr fixedSt George/Bank of Melbourne/ Greater Bank

1.79%

3 yr fixed86 400

1.85%

4 yr fixedTeachers Mutual

2.14%

5 yr fixedFreedom Lend

2.27%

VariableReduce Home Loans

1.77%

Source: RateCity.com.auNote: Rates are for owner-occupiers paying principal and interest. Some LVR requirements apply. 

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This article was reviewed by Research Director Sally Tindall before it was published as part of RateCity's Fact Check process.

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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 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 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 are the different types of home loan interest rates?

A home loan interest rate is used to calculate how much you’ll pay the lender, usually annually, above the amount you borrow. It’s what the lenders charge you for them lending you money and will impact the total amount you’ll pay over the life of your home loan. 

Having understood what are home loan rates in general, here are the two types you usually have with a home loan:

Fixed rates

These interest rates remain constant for a specific period and are a good option if you’re a first-time buyer or if you’re looking for a fixed monthly repayment. One possible downside of a fixed rate is that it may be higher than a variable rate. Also, you don’t benefit from any lowering of interest rates in the market. On the flip side, if rates go up, your rate won’t change, possibly saving you money.

Variable rates

With variable interest rates, the lender can change them at any time. This change can be based on economic conditions or other reasons. Changes in interest rates could be beneficial if your monthly repayment decreases but can be a problem if it increases. Variable interest rates offer several other benefits often not available with fixed rate home loans like redraw and offset facilities and free extra repayments. 

How long can you fix a home loan rate for?

Most lenders should let you fix your interest rate for anywhere between one and five years. While rare, a few lenders may offer fixed rate terms for as long as 10 years.

Fixing your home loan interest rate for a longer term can keep your budgeting fairly straightforward, as you shouldn't have to factor in changes to your mortgage repayments if variable rates change, such as when the Reserve Bank of Australia (RBA) changes its rates at its monthly meeting. Additionally, if variable rates rise during your fixed rate term, you can continue to pay the lower fixed rate until the fixed term ends, potentially saving you some money.

Of course, a longer fixed term also means a longer length of time where you may have less flexibility in your home loan repayments. It’s also a longer period where you won’t be able to refinance your mortgage without paying break fees. If variable rates were to fall during this period, you may also be stuck paying a higher fixed rate for a longer period.

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 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.

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

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.

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.

Does the Home Loan Rate Promise apply to discounted interest rate offers, such as honeymoon rates?

No. Temporary discounts to home loan interest rates will expire after a limited time, so they aren’t valid for comparing home loans as part of the Home Loan Rate Promise.

However, if your home loan has been discounted from the lender’s standard rate on a permanent basis, you can check if we can find an even lower rate that could apply to you.