Westpac the third big bank to slash fixed rates

Westpac the third big bank to slash fixed rates

Westpac now has the lowest 2-year fixed rate in the market at 1.79 per cent.

Australia’s second largest bank has today slashed up to 0.20 per cent off its 2- and 3-year fixed rates home loans for new owner-occupiers, and its 2-year investor fixed rates.

Today’s fixed rate cuts from Westpac

Fixed rates Yesterday Today Difference
2 year (lowest) 1.99% 1.79% -0.20%
3 year (lowest) 1.99% 1.88% -0.11%

Note: above rates are for owner occupiers paying principal and interest with a LVR ratio of 70 per cent or less on a package loan.

The Westpac Group’s St. George, Bank of Melbourne and BankSA have also dropped some fixed rates by up to 0.20 per cent today (please get in touch for full details.)

Today’s cuts from Westpac follow similar moves from big four banks ANZ and NAB who also cut fixed rates in the last month.

RateCity.com.au database shows:

  • 44 lenders have cut home loan rates since Jan 1
  • 15 lenders have hiked home loan rates since Jan 1
  • 57 lenders have home loan rates under 2%, including three of the big four banks.

Sally Tindall, research director at RateCity.com.au, said, “Westpac has thrown down the gauntlet to its competitors today proving there’s still heat in fixed rate market.”

“While we’re nearing the bottom of the rate cycle, provided the cash rates remains above zero, it’s likely there’ll be more cuts in the weeks to come as banks compete for the record levels of new lending coming through the door,” she said.

“Lenders are currently in a strong position to offer low fixed rates, which also have the benefit of locking a customer in for the fixed term.

“Westpac is offering the lowest two- and four-year fixed rates in the market – an unusual position for a big four bank.

“CBA’s home loans are starting to look outdated with just one fixed rate under 2 per cent.

“Westpac group is reserving its sharpest rates for people who own at least 30 per cent of their home.

“Property price rises aren’t just helpful for people planning to sell, if you’ve had your home loan for a few years you might find you have more equity than you think and qualify for one of these low-rate loans,” she said.

Lowest rates on RateCity.com.au database:

Lowest rates Lender March 2021
1 yr fixed Greater Bank

1.69% 

2 yr fixed Westpac, St George, Bank of Melbourne

1.79% 

3 yr fixed UBank

1.75% 

4 yr fixed Westpac, St George, Bank of Melbourne

1.89% 

5 yr fixed Aussie Home Loans

1.99% 

Lowest variable Homestar, Reduce 

1.79% 

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

Big four banks – lowest owner-occupier rates 

  CBA Westpac NAB  ANZ
1 year fixed

2.19%

1.99%

2.09% 

2.04%

2 year fixed

2.14%

1.79%

2.04%

2.04%

3 year fixed

2.14%

1.88%

1.98%

2.04%

4 year fixed

1.99%

1.89%

1.98%

2.24%

5 year fixed

2.99%

2.19%

2.24%

2.24%

Lowest variable rate

2.69%

2.19% for 2 yrs then 2.69%

2.69%

2.72%

Source: RateCity.com.au

Note: Westpac's rates are for a loan to value ratio of 70%.

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: 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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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 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 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.

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

Why does Westpac charge an early termination fee for home loans?

The Westpac home loan early termination fee or break cost is applicable if you have a fixed rate home loan and repay part of or the whole outstanding amount before the fixed period ends. If you’re switching between products before the fixed period ends, you’ll pay a switching break cost and an administrative fee. 

The Westpac home loan early termination fee may not apply if you repay an amount below the prepayment threshold. The prepayment threshold is the amount Westpac allows you to repay during the fixed period outside your regular repayments.

Westpac charges this fee because when you take out a home loan, the bank borrows the funds with wholesale rates available to banks and lenders. Westpac will then work out your interest rate based on you making regular repayments for a fixed period. If you repay before this period ends, the lender may incur a loss if there is any change in the wholesale rate of interest.

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.

How does ANZ calculate early repayment costs?

If you have a fixed interest home loan, you’ll pay ANZ home loan early exit fees for partial or full repayment of the loan amount before the end of the fixed interest rate duration. These fees are also payable if you switch to another variable or fixed-rate loan.

The ANZ mortgage early exit fees can vary and you can get an estimate from the lender before you decide to prepay the loan. However, the exact early repayment cost can be determined when you prepay the loan.

The early exit fees are calculated after considering factors like the prepayment amount, the period left before the fixed-rate duration ends, and the change in the market rates since the beginning of the fixed-rate period. The early exit fees may not be charged if you’re paying off a smaller amount. You can check with ANZ to see how much you’ll have to pay.

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.

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.

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.

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 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.

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.