Paul's Insights: Rate war benefits borrowers
The Reserve Bank may have kept the official cash rate on hold in May but behind the scenes, banks are taking the axe to home loan rates - and borrowers are the winners.
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.