Paul's Insights: Rate war benefits borrowers
ANZ is the most recent of the big four banks to drop interest rates across several of its fixed rate home loans. Earlier this month, Australia’s fourth largest bank cut between 0.20% and 0.60% off owner occupier and investor fixed loans, bringing the bank into line with its other big four competitors.
In April, Australia’s fifth largest home loan lender, ING, dropped rates on several fixed home loans by up to 0.19%, to deliver a 3-year fixed rate of 3.64%. Macquarie Bank, Australia’s eighth largest home lender has slashed variable rates on a range of home loans by up to 0.51%. According to Mozo, Macquarie’s lowest ongoing variable rate, available to new owner occupiers, is now 3.69% – a drop of 0.12%.
In a super-competitive lending market it pays to think outside the square. Plenty of newcomers and smaller lenders are also offering red hot deals. Athena Home Loans for instance is offering rates as low as 3.59% to refinancers.
As a guide to how good these deals are, Reserve Bank figures show the average ‘basic’ variable rate is 4.68% for owner occupiers and 5.25% for investors. The average 3-year fixed rate is 3.99% for owner occupiers; 4.24% for investors.
To know how your loan stacks up for value, take a look at your latest loan statement to see the rate you’re paying. Research shows that two out of five borrowers don’t know their current home loan interest rate, but on a debt that probably tops a few hundred thousand dollars, there’s no room for complacency.
If you think your lender is holding something back, pick up the phone and demand a better deal. Or take a look at what else is available in the market. Loyalty doesn’t always pay – especially when it comes to financial products like home loans. When it’s possible to get a rate well below 4% if you’re a home owner, paying above the odds will only make your bank rich, while leaving you out of pocket.
To make an accurate comparison between loans, always look at the ‘comparison’ rate, which includes upfront and ongoing fees. Ask lenders for a home loan fact sheet too. This will show the comparison rate for the loan size you’re thinking of taking out.
Paul Clitheroe is Chairman of InvestSMART, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.
Frequently Asked Questions about this Article…
ANZ has recently reduced interest rates on several of its fixed rate home loans, cutting between 0.20% and 0.60% for both owner occupier and investor fixed loans.
Macquarie Bank has slashed variable rates by up to 0.51%, with their lowest ongoing variable rate for new owner occupiers now at 3.69%, which is significantly lower than the average 'basic' variable rate of 4.68% for owner occupiers.
The 'comparison' rate is crucial as it includes both upfront and ongoing fees, providing a more accurate picture of the loan's total cost. It's important to consider this rate when comparing different home loan options.
Knowing your current home loan interest rate is essential because it allows you to compare it with market rates and ensure you're not overpaying. Many borrowers are unaware of their rates, which can lead to complacency and unnecessary expenses.
The article advises borrowers to actively seek better deals by contacting their lender for a better rate or exploring other market options. Loyalty to a lender doesn't always pay off, especially when better rates are available elsewhere.
Smaller lenders like Athena Home Loans compete by offering competitive rates, such as 3.59% for refinancers, which can be lower than those offered by larger banks.
According to Reserve Bank figures, the average 'basic' variable rate is 4.68% for owner occupiers and 5.25% for investors. The average 3-year fixed rate is 3.99% for owner occupiers and 4.24% for investors.
Paul Clitheroe is the Chairman of InvestSMART, Chairman of the Australian Government Financial Literacy Board, and the chief commentator for Money Magazine, providing insights and advice on financial matters.
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