Which banks made the biggest home loan cuts in 2020?

Canstar reveals which home loan interest rates had the biggest cuts in 2020. Image source: Andrii Yalanskyi, Shutterstock.

Looking back on the year, Canstar can reveal the home loans on its database that had the biggest interest rate cuts in 2020. Plus, find out where to get some of the best rates right now.

The year of the pandemic brought with it a recession that rung in lower interest rates from the Reserve Bank of Australia (RBA). The central bank’s cash rate has fallen by 0.65 percentage points over the year and is now sitting at the record-low rate of 0.10%.

As a result, many mortgage-holders have been able to score a lower home loan interest rate from their bank, or have found a better rate elsewhere, from a different lender.

In fact, Canstar’s annual Consumer Pulse Report found 14% of Australian mortgage holders surveyed switched home lenders in 2020 in order to get a lower interest rate, with a further 17% intending to switch. Almost one third (32%) of borrowers said they had successfully negotiated a lower home loan rate with their current lender this year.

The importance of looking for a better home loan rate was further highlighted in a report released on Saturday by the Australian Competition and Consumer Commission (ACCC).

The consumer watchdog recommended that banks be required to regularly prompt borrowers with old loans to review their interest rate, after finding mortgage holders with loans between three and five years old paid on average around 0.58 percentage points more than the average interest rate paid for new loans.

Luckily, it’s a good time for savvy borrowers to be comparing their rate. Home loan interest rates have fallen by an average of 0.72 percentage points this year, according to Canstar’s database, as many banks and non-bank lenders have passed through savings to customers.

Some have passed on far greater savings than the average, Canstar can reveal, with rate cuts above two whole percentage points from some lenders, and as high as 1.5 percentage points from the major banks on some of their products.

◊ In this story:

Biggest home loan interest rate cuts in 2020
Why were those loans cut the most?
Should I choose a variable or fixed rate?
What to look for when choosing a home loan
Cheapest home loan interest rates currently available

What were the biggest home loan interest rate cuts in 2020?

Canstar’s research analysts crunched the numbers from our home loan database and found the top 11 biggest home loan interest rate cuts to owner-occupier loans from 2020. The list is ordered by the highest to lowest interest rate cut, followed by the current interest rate.

Top 11 biggest cuts in home loan interest rates

Company	Loan	Interest Rate – Comparison Rate^ in Brackets
Company	Loan	1 January 2020	7 December 2020	Change
Bankwest	Fixed Rate Owner Occupied 4 yrs	4.54% (5.00%)	2.19% (3.97%)	-2.35%
Aussie	Select Basic Fixed 5 yrs	3.99% (3.59%)	1.99% (2.35%)	-2.00%
Bank of Queensland	Residential Fixed 4 yrs	3.89% (3.96%)	1.99% (2.90%)	-1.90%
Illawarra Credit Union	Bare Essentials Home Loan Variable	4.49% (4.54%)	2.59% (2.64%)	-1.90%
Delphi Bank	Standard Fixed 4 yrs	3.89% (4.70%)	2.09% (3.95%)	-1.80%
AMP Bank	Professional Package Residential Fixed 1 yr	4.25% (4.49%)	2.49% (3.24%)	-1.76%
Gateway Bank	Residential Fixed 2 yrs	4.03% (4.66%)	2.29% (4.10%)	-1.74%
QBANK	Fixed Home Loan 4 yrs	3.64% (3.92%)	1.99% (3.26%)	-1.65%
Macquarie Credit Union	Basic Home Loan Variable	4.40% (4.44%)	2.85% (2.89%)	-1.55%
Westpac	Premier Advantage Fixed Options 4 yrs	3.49% (3.93%)	1.99% (3.29%)	-1.50%
Commonwealth Bank	Wealth Package Residential Fixed 4 yrs	3.49% (4.43%)	1.99% (3.66%)	-1.50%

Source: www.canstar.com.au – 7/12/2020. Based on owner-occupier variable and 1-5 year fixed loans on Canstar’s database available for a loan amount of $400,000, 80% LVR and principal & interest repayments; excluding introductory and first home buyer-only loans. One product per provider is listed in the table, which is selected and sorted in descending order by change in rate, then in ascending order by the new rate and comparison rate, where applicable. Change in interest rate is based on the lowest rate for each product, including any special offers, available at each point in time. ^Comparison rates calculated based on a $150,000 loan amount over a total loan term of 25 years. Read the Comparison Rate Warning.

Why were these loans cut the most?

There were only two variable rate loans on the list of the biggest home loan rate cuts on Canstar’s database in 2020, with the majority being to four and five-year fixed rates.

Canstar finance expert Steve Mickenbecker said this was largely down to banks taking advantage of the current low-cost environment, which in turn is a result of the quantitative easing put in place by the RBA.

Essentially, banks are paying less at the moment than they were previously for some of the money they borrow and lend out to consumers.

“The funding rates for banks have declined dramatically over those longer terms. What that means for consumers is there are some great fixed-rate loans out there at the moment,” Mr Mickenbecker said.

He said many of the four and five-year loans had started with “very high” interest rates above 4%, which was why the cuts were so large.

As for the small proportion of variable rate contenders in the list, Mr Mickenbecker said this was largely down to the smaller lenders – including several non-banks – not having access to some of the longer-term funding.

While they haven’t made the biggest cuts, those lenders tend to be the market leaders in variable rate home loans because their funding sources are different, being mainly made up of securitisation, Mr Mickenbecker explained.

↓ Keep reading to see which banks have the lowest home loan rates

According to ANZ, securitisation is the process of pooling assets and repackaging them into securities, which provide another source of funding, particularly for non-bank lenders and smaller authorised deposit-taking institutions. It can reduce funding costs.

Should I choose variable or fixed?

Mr Mickenbecker said one benefit of variable rate loans was that you could potentially get the advantage of further rate cuts. Fixed rates are already at record lows, though it’s possible they could go lower, in which case people who lock in now would miss out on those possible future cuts.

“There’s a strong argument for saying that if you want the certainty of repayments, by all means fix,” Mr Mickenbecker said.

“If you think you can get a better rate later, then stay variable. But who’s a good enough interest rate speculator to get that one right all the time?

“The beauty at the moment is you really can’t go wrong whether you fix or go variable because rates are so low it’s a good call either way, provided you get in among the lowest rates in the market – that’s the really critical issue at the moment.”

Mr Mickenbecker said he was also a fan of what he’s dubbed the ‘hybrid strategy’ for borrowers who are nervous about missing out on lower rates if they lock themselves into a fixed rate loan now.

“You can fix for just 12 months and take advantage of the discount that’s available at the moment for fixed rates,” he suggested.

“Say you’re with one of the big four banks and you want to stay with them for convenience. You could save roughly 0.60 percentage points at the moment by going into a 12-month fixed rate loan compared to their lowest rate variable loan.

“That’s a pretty big saving you can bank away for 12 months, and then at the end of that time, if there are better rates around, you can jump on them then.

“Chances are you’ll be ahead of the game because you’ve taken the low rate right up front, especially if you can make sure the loans you choose also suit your needs in terms of fees and features.”

What to look for when choosing a home loan

Mr Mickenbecker has a few key tips for borrowers comparing their home loan options in the near future:

Pick a good interest rate – it’s generally the biggest consideration.
Choose a home loan that gives you the flexibility to make extra repayments when you’re able, to help you get ahead and build financial wellbeing.
Consider a loan that has an offset account or redraw facility. The benefit of those features is that if something goes wrong, you can access money if need be.

Lowest home loan rates on Canstar’s database

There are currently 102 owner-occupier loans on Canstar’s home loan database with interest rates below 2%. Here are the cheapest rates currently available for variable and fixed mortgages of $400,000 with an 80% loan-to-value ratio (LVR).

Top 5 variable home loan rates

Provider	Product	Intro Loan?	Offset Account?	Redraw?	Interest Rate	Comparison Rate^
Reduce Home Loans	Super Saver Variable	N	N	Y	1.99%	2.05%
loans.com.au	Smart Booster Home Loan Intro 1 yr	Y	Optional (add 0.10%)	Y	1.99%	2.47%
Illawarra Credit Union	The Works Package Home Loan P&I 2 yr Intro	Y	Y	Y	1.99%	2.93%
Pacific Mortgage Group	Variable P&I 75-90%	N	Y	Y	2.09%	2.09%
Homestar Finance	Star Essentials 80% OO 150-850k	N	N	Y	2.14%	2.14%

Source: www.canstar.com.au – 7/12/2020. Based on owner occupier variable loans on Canstar’s database available for a loan amount of $400,000, 80% LVR and principal & interest repayments; excluding first home buyer only loans. One product per provider is listed, with the 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.

Top 5 fixed home loan rates (any term)

Provider	Product	Offset Account?	Redraw?	Interest Rate	Comparison Rate^
TicToc Home Loans	Live-in Fixed P&I 2 yrs	Optional ($10/mth)	Y	1.89%	2.15%
Suncorp Bank	Home Package Plus Owner Occupied <80% Fixed P&I 2 yrs Special Offer	N	N	1.89%	2.94%
QBANK	Fixed Home Loan 3 yrs Special Offer	N	Y	1.89%	3.37%
Greater Bank	Great Rate Fixed 1 yr	N	Y	1.89%	3.51%
RACQ Bank	Choices Residential Fixed 3 yrs 20k+	N	N	1.89%	3.84%

Source: www.canstar.com.au – 7/12/2020. Based on owner-occupier fixed loans of any term on Canstar’s database available for a loan amount of $400,000, 80% LVR and principal & interest repayments; excluding first home buyer-only loans. One product per provider is listed, with the 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. Read the Comparison Rate Warning.

If you’re currently considering a home loan, the comparison table below displays some of the variable and fixed rate 1-year home loans on our database with links to lenders’ websites that are available for homeowners looking to Refinance. This table is sorted by Star Rating (highest to lowest), followed by comparison rate (lowest-highest). Products shown are principal and interest home loans available for a loan amount of $350K in NSW with an LVR of 80% of the property value and that offer an offset account. Before committing to a particular home loan product, check upfront with your lender and read the applicable loan documentation to confirm whether the terms of the loan meet your needs and repayment capacity. Use Canstar’s home loan selector to view a wider range of home loan products.

Ellie McLachlan

Former Content Lead

Ellie McLachlan is the former Content Lead at Canstar, helping to shape and deliver the content strategy. She specialises in covering mortgage and everday money topics and breaking finance news. An experienced journalist, Ellie has made her mark working in digital, broadcast and print media, serving in positions such as Editor at News Corp Australia's Compare Money and also News.com.au's Best Of Money, as Story Strategy Coach at the Australian Conservation Foundation, as a lifestyle reporter at The Urban List, The Courier Mail and The Sunshine Coast Daily, as well as radio presenter at 4ZZZ. While at Canstar, Ellie has written well over 500 finance articles and her work is regularly referenced by other publishers, including Business Insider, The Motley Fool and The New Daily. Her expert financial commentary has been featured in publications such as Yahoo Finance and the Herald Sun. Ellie studied a Bachelor of Journalism and Arts (Peace and Conflict Studies) at the University of Queensland.