How to win the bank home loan rate war

How to win the bank home loan rate war

As home loan rates plunge to new lows, you may be wondering how you can win the bank rate war. The answer may be as simple as picking up the phone.

Last week we saw ANZ cut its fixed rates to as low as 2.68% per cent. This was in response to CBA slashing its fixed rates by up to 50 basis points just the week before.

Both of these changes saw even more loans fall under the 3 per cent bracket. This means home loans rates starting with a 2 are becoming more and more accessible for homeowners and investors.

Are you in a position to haggle?

Before you try to nab a lower home loan rate, you’ll want to position yourself as a more ‘ideal’ borrower.

Put simply, this is a mortgage holder who:

  • Has paid off 20 per cent of the property value or more
  • Is employed full time
  • Lives in the property 
  • Is paying principal and interest

If you only tick one or two of these boxes (for example, because you’re an investor), you can still fight for a lower rate. Just keep in mind that some lenders save the lowest home loan rates for borrowers with LVRs of 80 or below.

Talk your way to a lower rate

If you’re currently paying off your mortgage, an interest rate cut could be waiting for you if you pick up the phone and ask for one.

First, you can arm yourself with as much ammunition as possible:

  1. Check what rate your bank is offering new customers, as it’s often more competitive than existing customer rates.
  2. Use a comparison table to see what other banks are offering customers.

Next, you can call up your home loan provider, let them know you want them to lower your rate, and present your research by saying:

  • You are an ideal borrower for one or more reasons listed above.
  • You have been a loyal customer for however many years and it’s unfair new customers are getting lower rates. Here is where you provide some examples.
  • You know competitors are charging lower rates for similar loans (provide examples) and you’re considering switching.

To switch or not to switch

If your bank is unwilling to budge, or if you believe another lender is actually a better option, the time may have come to consider refinancing. After all, you have a list of lower rate lenders at your disposal now.

Keep in mind that there are fees associated with refinancing. These can include upfront fees, break fees for fixed loans, and lender’s mortgage insurance if you’ve not paid off 20 per cent of the loan.

However, the benefit of refinancing to a lower rate loan is that your mortgage repayments may reduce, saving you money in the long run. This means you could eventually break even on these fees, sometimes in a matter of months.

What are the lowest home loan rates?

There are currently 485 loans starting with a 2 in the RateCity database.

Here are some examples of home loan rates starting with a 2 that you can either use as ammunition in your negotiations or consider refinancing to:

Variable owner-occupier loans

Company Product Advertised Rate Comparison Rate
Reduce Home Loans Low Rider Home Loan

2.69%

2.71%

Well Home Loans Well Balanced Home Loan

2.72%

2.75%

Homestar Finance Star Essentials Home Loan

2.74%

2.77%

Note: Data based on lowest variable owner-occupier loans paying principal and interest on $400k mortgage over 30 years. Data accurate as at 28.20.2020.

Variable investor loans

Company Product Advertised Rate Comparison Rate
Reduce Home Loans Rate Slasher Variable Investment Loan

2.99%

3.01%

State Custodians Low Rate Investment Loan

3.08%

3.10%

Freedom Lend Freedom Variable Investment Loan

3.09%

3.09%

Note: Data based on lowest variable investor loans paying principal and interest on $400k mortgage over 30 years. Data accurate as at 28.20.2020.

2-year fixed owner-occupier loans

Company Product Advertised Rate Comparison Rate
GMCU Fixed Rate Loan Offer 2 Years

2.50%

3.91%

Well Home Loans Well Balanced Home Loan Fixed

2.68%

2.75%

ANZ Breakfree Package Fixed Rate Home Loan

2.68%

4.40%

Note: Data based on lowest 2-year fixed owner-occupier loans paying principal and interest on $400k mortgage over 30 years. Data accurate as at 28.20.2020.

2-year fixed investor loans

Company Product Advertised Rate Comparison Rate
ANZ Breakfree Package Fixed Rate Investment Loan

2.88%

4.91%

Tic Toc Fixed Investment Loan

2.89%

3.24%

Westpac Premier Package Fixed Rate Investment Loan

2.99%

4.21%

Note: Data based on lowest 2-year fixed investor loans paying principal and interest on $400k mortgage over 30 years. Data accurate as at 28.20.2020.

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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 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.

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 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 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 Home Loan Rate Promise?

The Home Loan Rate Promise is RateCity putting its money where its mouth is. We believe that too many Australians are paying too much for their home loans. We’re so confident we can help Aussies save money, if we can’t beat your current rate, we’ll give you a $100 gift card.*

There are two reasons it pays to check your rate with the Home Loan Rate Promise:

  • You can find out how much you could save on your home loan by switching to a loan with a lower interest rate
  • If we can’t beat your current rate, you can claim a $100 gift card with our Home Loan Rate Promise*

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. 

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.

How do you determine which home loan rates/products I’m shown?

When you check your home loan rate, you’ll supply some basic information about your current loan, including the amount owing on your mortgage and your current interest rate.

We’ll compare this information to the home loan options in the RateCity database and show you which home loan products you may be eligible to apply for.

 

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).

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. 

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.

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.

How do I apply for a home improvement loan?

When you want to renovate your home, you may need to take out a loan to cover the costs. You could apply for a home improvement loan, which is a personal loan that you use to cover the costs of your home renovations. There is no difference between applying for this type of home improvement loan and applying for a standard personal loan. It would be best to check and compare the features, fees and details of the loan before applying. 

Besides taking out a home improvement loan, you could also:

  1. Use the equity in your house: Equity is the difference between your property’s value and the amount you still owe on your home loan. You may be able to access this equity by refinancing your home loan and then using it to finance your home improvement.  Speak with your lender or a mortgage broker about accessing your equity.
  2. Utilise the redraw facility of your home loan: Check whether the existing home loan has a redraw facility. A redraw facility allows you to access additional funds you’ve repaid into your home loan. Some lenders offer this on variable rate home loans but not on fixed. If this option is available to you, contact your lender to discuss how to access it.
  3. Apply for a construction loan: A construction loan is typically used when constructing a new property but can also be used as a home renovation loan. You may find that a construction loan is a suitable option as it enables you to draw funds as your renovation project progresses. You can compare construction home loans online or speak to a mortgage broker about taking out such a loan.
  4. Look into government grants: Check whether there are any government grants offered when you need the funds and whether you qualify. Initiatives like the HomeBuilder Grant were offered by the Federal Government for a limited period until April 2021. They could help fund your renovations either in full or just partially.