How to get a better home loan deal
HOME loan customers can now lap up variable interest rates with a "2" in front after the Reserve Bank cut the cash rate to a new low. Here's how to get the best deal.
All of the big banks announced decreases - ANZ passed on the full 0.25 percentage point cut to borrowers, Westpac dropped by 0.20, NAB went down by 0.19, as did CBA but only for customers paying principal and interest.
In an interesting move, CBA passed the full cut to customers on interest-only loans.
Westpac went a step further than the RBA cut, reducing rates for investment interest only loans by 0.30 percentage point.
RBA governor Phillip Lowe said the rate decrease hoped to help reduce unemployment and lift inflation.
On a $300,000 30-year home loan, the latest fall will save a borrower on an average variable rate of 3.84 per cent $43 per month and reduce their repayments to $1405.
ANZ was slammed last month for being the stingiest of the big four lenders and only passed on 0.18 percentage points of the June cut, so in a move to redeem itself it this time passed on the full rate cut.
Financial comparison website Mozo's spokeswoman Kirsty Lamont said it was a rates dream for borrowers.
"Unbelievably we are now seeing variable home loans with a "2" in front, that's a record in Australia," she said.
"It really means there are some absolute bargains out their borrowers, smaller lenders are rolling out the red carpet in a bid to win borrowers off the big banks.
"Even if the big banks do cut their rates, the difference between the big bank loans and the challenger lenders is still so large that there are significant savings to be made by switching."
Smaller lender Reduce Home Loans now has the lowest variable rate on the market, after dropping it by 0.2 percentage points to just 2.89 per cent.
The Mortgage and Finance Association of Australia's chief executive officer, Mike Felton, said it was vital "lenders passed on the latest rate cut".
"It's great news for the housing market, borrowers and the economy generally but it clearly depends on lenders passing it through," he said.
"Lower repayments and affordability from recent rates cuts will alleviate some of the pressures for existing borrowers but will provide opportunities for first home buyers who need to get into the market."
Other lenders who announced moves yesterday included smaller lenders Homestar, Athena and State Custodians.
Home Loan Experts' managing director Otto Dargan said the big four's swift move would help borrowers.
"There's a lot of cheap deals available at the moment, it's a rate dream for borrowers," he said.
"Lenders are a bit all over the place and in particular they aren't giving their existing customers the same deals they are offering their new borrowers."
Mr Dargan said there was a noticeable difference between what rates lenders offer, ranging anywhere from with in "2" in front up to as high as five per cent.
"We're seeing big differences between lenders with some incredible deals on offer," he said.
"Now is the time for borrowers to consider refinancing if their bank is out of market."
AMP Capital chief economist Shane Oliver said the "sting in the tail or RBA rate cuts is lower deposit rates".
"That's how banks can pass on RBA rate cuts to mortgage holders, they have to cut their deposit rates otherwise their profits go down," he said.
"Deposit rates will probably go lower here and that's not good for self-funded retirees who will pay for this to some degree.
"The value of household debt is roughly two times the value of house bank deposits so there is a benefit to the economy for cutting interest rates."
Many banks are offering savings rates that are lower than one per cent.
HOW TO GET A BETTER HOME LOAN DEAL
1. Check your most recent mortgage statement and find out your rate.
2. Many deals are in the mid "3" per cent range but see if you can do better. Use financial comparison websites to compare such as RateCity, Mozo, Canstar and Finder.
3. If you find a better deal, ring your bank. Ask for the home loan retention team.
4. Tell them you want a better deal and reel off lenders offering cheaper rates.
5. If they won't budge tell them you are switching and ask for a mortgage discharge form.
6. See what happens next, your lender may come to the party or you may need to switch