Westpac mirrors CBA with no cut for variable rate customers

Westpac mirrors CBA with no cut for variable rate customers

Australia’s second biggest bank has followed CBA, announcing it will not be passing on the rate cut to its existing variable rate customers, opting to cut fixed rates instead.

Westpac home loan rate changes – based on a loan-to-value ratio of under 70%

Loan type Current Rate New Rate Change
Standard variable

4.48%

4.48%

0%

Discounted variable

3.19%

3.19%

0%

Lowest variable

2.19% for 2yrs, 2,69% after 

2.19% for 2yrs, 2.69% after  

0%

1 year fixed

2.19%

1.99%

0.20%

2 year fixed

2.19%

1.99%

0.20%

3 year fixed

2.19%

1.99%

0.20%

4 year fixed

2.69%

1.89%

0.80%

5 year fixed

2.69%

2.69%

0%

Note: the above rates are for owner occupiers paying principal and interest based on a loan balance of $400K. Based on an LVR of under 70%

Missed savings for existing Westpac variable customers

  Rate Repayments Repayments if 0.15% cut had been passed on Difference
Standard variable

4.48%

$2,022

$1,987

$35

Discounted variable

3.19%

$1,728

$1,695

$33

Lowest variable

2.19% for 2 yrs then 2.69%

$1,517

$1,486

$30

Notes: based on an owner occupier paying principal and interest over 30 years with a $400K loan. Based on a LVR of 70%.

RateCity.com.au research director, Sally Tindall, said Australia’s two biggest banks had served up some sour news to their variable rate mortgage customers.

“Governor Lowe has said he believes this rate cut will be passed through as people refinance or renegotiate their home loan, but he’s forgotten about the thousands of Australians who aren’t in a position to do so,” she said.

“These are the people who need this rate cut, but based on the response from the banks so far, they’re precisely the ones who are going to miss out.


“Anyone who’s lost their job, or on a mortgage deferral or who simply don’t have enough equity in their loan to refinance are in mortgage prison. They can’t switch lenders. They either have to stick on a high variable rate or fix with their current bank.

“Westpac now has the lowest fixed rate loan in Australia currently.

“These are cracking new fixed rates from the big banks which can potentially save the average mortgage holder hundreds of dollars a month, but only for customers willing to fix.

“If you are on a mortgage deferral, looking to sell your property in the next few years or looking to get ahead on your mortgage then it’s unlikely a fix rate is going to suit you,” she said.

 

Tips for variable rate customers

  • Ask your bank for a rate cut. Check what they are offering new customers and if you are paying more, ask them to match it.
  • Consider refinancing. If you want to stay on a variable rate and are in a position to switch lenders, there are rates as low as 1.77 per cent, particularly for people with a decent amount of equity.
  • Consider a fixed rate. Remember – fixing comes with strict terms and conditions and typically won’t let you get significantly ahead on your repayments.

 

Extra repayments – fixed rate caps from the big four banks

CBA: up to $10,000 per year

Westpac: up to $30,000 per fixed rate term

NAB: up to $20,000 per fixed rate term

ANZ: ANZ: 5% of the loan balance or $5,000 per year, whichever is less. (The 5% is calculated at the start of the fixed period).

 

Things to consider before fixing

  • Will I want to make extra repayments? Most banks have caps on how much extra you can repay while on a fixed rate.
  • Do I need an offset account? Most banks don’t offer an offset account on their fixed rates.
  • Will I need to get out of the loan early? There can be hefty break fees if you do.
  • What is the revert rates? If you do fix, make a note of when the fixed term ends so you can negotiate a lower variable rate, refix or refinance. If you set and forget your fixed rate for the long term it could end badly.

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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 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 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 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 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 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 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.

Mortgage Calculator, Interest Rate

The percentage of the loan amount you will be charged by your lender to borrow. 

What is the ratings scale?

The ratings are between 0 and 5, shown to one decimal point, with 5.0 as the best. The ratings should be used as an easy guide rather than the only thing you consider. For example, a product with a rating of 4.7 may or may not be better suited to your needs than one with a rating of 4.5, but both are probably much better than one with a rating of 1.2.

Mortgage Calculator, Repayment Type

Will you pay off the amount you borrowed + interest or just the interest for a period?

What does going guarantor' mean?

Going guarantor means a person offers up the equity in their home as security for your loan. This is a serious commitment which can have major repercussions if the person is not able to make their repayments and defaults on their loan. In this scenario, the bank will legally be able to the guarantor until the debt is settled.

Not everyone can be a guarantor. Lenders will generally only allow immediate family members to act as a guarantor but this can sometimes be stretched to include extended family depending on the circumstances.

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.