Banks reduce loan rates in anticipation of RBA rate cut

THE Commonwealth Bank, Westpac and ING have joined the growing list of lenders slashing home loan rates, as the lowest variable rate in the market plunges to 1.89% and it has yet to reach the bottom.

Australia’s largest lender the CBA will cut its Extra Home Loans, which does not have an offset or extensive features, by 0.10% for owner occupiers and up to 0.15% for investors, taking the lowest variable rate offer from the bank to 2.69%.

This comes as the second largest lander, Westpac, launched a 2.19% introductory variable rate a week ago, that reverts to 2.69% after two years.

The fifth largest lender, ING, has also cut variable rates for new owner-occupier customers by 0.10% to 2.49%.

According to RateCity, 47 lenders have reduced new customer variable rates in the last two months and 34 lenders have cut fixed rates in the last two months. Eleven lenders now offer rates below 2% with the lowest variable rate now 1.89% (60% LVR).

RateCity research director Sally Tindall said the RBA has been hinting at a cash rate cut since the middle of the year.

“Home loan rates might be at record lows, but it’s unlikely we’ve hit the bottom just yet.

“The cuts by CBA and Westpac will force the rest of the home loan market to re-evaluate their pricing. As a result, we’re likely to see some lenders cut their new customer rates further,” Tindall said.

Canstar analysis shows CBA’s owner-occupied Extra home loan rate of 2.69% is 1.16% below the bank’s loan with an offset account being its Wealth Package at a variable rate of 3.85%. The difference in monthly repayments between the two on a $400,000 loan over 30 years is $255.

Canstar’s group executive, financial services, Steve Mickenbecker said looking across the market, further analysis shows mortgage holders will pay an average of 0.37% more for a variable rate loan with an offset account, or $81 each month on a $400,000 home loan over 30 years.

The CBA changes:

CBA Home Loan Interest Rate Changes 25 September 2020
Owner Occupied
Product & LVR	Repayment type	Old rate	New rate	Comparison rate	Change
Extra Home Loan <=70%	P&I	2.79%	2.69%	2.70%	-0.10%
Extra Home Loan 70.01-80%	P&I	2.79%	2.69%	2.70%	-0.10%
Extra Home Loan 80.01-95%	P&I	3.13%	3.13%	3.14%	–
Extra Home Loan <=70%	IO	3.35%	3.25%	2.91%	-0.10%
Extra Home Loan 70.01-80%	IO	3.35%	3.25%	2.91%	-0.10%
Investment
Product & LVR	Repayment type	Old rate	New rate	Comparison rate	Change
Extra Home Loan <=70%	P&I	3.27%	3.12%	3.13%	-0.15%
Extra Home Loan 70.01-80%	P&I	3.27%	3.15%	3.16%	-0.12%
Extra Home Loan 80.01-95%	P&I	3.54%	3.54%	3.55%	–
Extra Home Loan <=70%	IO	3.83%	3.68%	3.34%	-0.15%
Extra Home Loan 70.01-80%	IO	3.83%	3.71%	3.37%	-0.12%
Extra Home Loan 80.01-95%	IO	4.10%	4.10%	3.77%	–

Home Loan Insights:

Offset vs No Offset Average Owner Occupier Variable Rates
	With Offset	Without Offset	Difference
Average Rate	3.51%	3.14%	0.37%
Monthly Repayment	$1,798	$1,717	$81
Source: www.canstar.com.au – 24/09/2020. Based on owner occupier variable loans available for a loan amount of $400,000, 80% LVR and principal & interest repayments; excluding introductory and first home buyer only loans. Monthly repayment calculations assume a total loan term of 30 years.

“Getting ahead of your home loan repayment schedule works to recession proof your finances and helps build long term wealth. When no frills loans first hit the market, they came with the drawback that you could not make extra repayments to get ahead. Nowadays you can make the extra repayments and if you need to you can redraw your money.

“Most no frills loans do not have offset accounts, but for homeowners redraw is a close substitute for offset, and the subtle difference might not warrant a big interest rate differential,”

“For Commonwealth Bank in particular, a no frills loan may work for borrowers who don’t see the value of the additional benefits of the packaged loan that could be costing them an extra could be costing them an extra $255 a month,” Mickenbecker said.

Lowest variable home loan rates from the major banks

Lowest Rate Owner Occupied Variable Loans From the Major Banks ($400k, 80% LVR)
Provider	Loan	Rate	Comparison Rate	Monthly Repayment	Offset Account Included?
NAB	Base Variable Rate P&I Special Offer <80%	2.69%	2.69%	$1,620	No
ANZ	Simplicity Plus P&I <80% Special Offer	2.72%	2.76%	$1,627	No
Commonwealth Bank	Extra P&I 70-80%	2.69%	2.70%	$1,620	No
Westpac	Flexi First Option P&I 2 Year Promo Discount	2.29% (reverting to 2.79%)	2.72%	$1,537	No
Source: www.canstar.com.au – 25/09/2020. Based on owner occupier variable loans available for a loan amount of $400,000, 80% LVR and principal & interest repayments; excluding introductory and first home buyer only loans. Table sorted in ascending order by rate, followed by comparison rate, followed by alphabetically by company. Comparison rates calculated based on a $150,000 loan amount over a total loan term of 25 years. Monthly repayment calculations assume a total loan term of 30 years.

Lowest home loan rates in the market:

Top 5 Lowest Rate Owner Occupier Variable Loans ($400k, 80% LVR)
Provider	Loan	Rate	Comparison Rate	Monthly Repayment	Offset Account Included?
Reduce Home Loans	Super Saver Variable	2.19%	2.26%	$1,517	No
Homestar Finance	Star Essentials 80% OO 150-850k	2.29%	2.32%	$1,537	No
Freedom Lend	Freedom Variable PI 80%	2.39%	2.39%	$1,558	Yes
TicToc Home Loans	Live-in Variable P&I	2.39%	2.40%	$1,558	No – option for $10/month
Pacific Mortgage Group	Variable P&I	2.44%	2.44%	$1,568	No
Source: www.canstar.com.au – 24/09/2020. Based on owner occupier variable loans available for a loan amount of $400,000, 80% LVR and principal & interest repayments; excluding introductory and first home buyer only loans. Top 5 selected and table sorted in ascending order by rate, followed by comparison rate. Comparison rates calculated based on a $150,000 loan amount over a total loan term of 25 years. Monthly repayment calculations assume a total loan term of 30 years.