The historically low cash rate means it’s an ideal time to consider a mortgage.
The Reserve Bank cut the cash rate to a 53-year low of 2.75 per cent almost four weeks ago. Most lenders this time around have passed on the cut in full to their mortgage interest rates.
The RBA board next meets on Tuesday to decide on the cash rate. Market expectations are divided on whether there will be another cut despite upbeat data on business investment.
With the cash rate at extreme lows, it may be time to consider taking out a fixed-rate home loan, but there is probably no need to rush. Variable and fixed rates are still falling, says Canstar financial analyst Mitchell Watson.
”Only last week, Westpac came out with a special, which is one of the lowest one-year fixed rates we have seen from the majors in the last 20 years,” Watson says.
Westpac dropped its one-year fixed-rate home loan to 4.79 per cent. That rate is for its Premier Advantage package, which has conditions and an annual fee. It is a 0.65 percentage point discount on its ”stand-alone” one-year fixed rate of 5.44 per cent that is shown in the accompanying tables.
Other lenders outside of the big banks have one-year fixed rates below 5 per cent. Newcastle Permanent has the lowest one-year fixed rate listed on the Canstar database, of 4.78 per cent. Mortgage House offers a one-year rate of 4.79 per cent for those borrowing more than $750,000.
ANZ went further than the other majors and cut 0.27 percentage points from its standard variable rate, to 6.13 per cent, to match NAB’s figure. Commonwealth Bank has a variable rate of 6.15 per cent. These are the standard variable rates and are always negotiable, Watson says. Those with a good credit history, a large share equity in the house and a big mortgage are more likely to be able to negotiate a discount.
The renewed competition among lenders comes as the housing market remains weak, Watson says. ”There are a lot of smaller lenders that have some fairly sharp rates as well,” he says.
Loans.com.au’s Blackboard Special interest rate of 4.75 per cent is the lowest variable rate listed on the Canstar database. It is available for those purchasing property, not refinancing an existing property. UBank’s UHomeloan, for refinancing only, has the second-lowest rate at 4.87 per cent.
Lenders are required to provide the comparison rate or the Average Annualised Percentage Rate (AAPR) alongside their ”headline” rates in their advertising and marketing. The comparison rate includes most of the fees and charges, such as upfront costs and ongoing ones. It is a good attempt to express the fees through the interest rate. This is based on a loan of $150,000 with a 25-year term.
The comparison rate for fixed-rate mortgages assumes the lender’s current variable interest rate will apply at the end of the fixed-rate term. Watson says the fixed rates may not stay this low for long. Should economic indicators show the economy is improving, the Reserve Bank may then increase interest rates to head off inflation. Fixed rates could start moving up before the Reserve Bank changes the cash rate.
Anyone thinking of taking out a fixed-interest mortgage should bear in mind that there can be costs in breaking the contract early. One strategy to spread the risk is to split the mortgage 50-50 between fixed and variable, which gives the best of both worlds, Watson says.
”You can lock in a rate that is historically low while getting the advantage of any more cuts to interest rates,” he says.
Those with a variable rate should always ask their lender for a better deal first. ”It is cheaper for a lender to retain business than to attract new customers,” Watson says.