RBA cash rate on hold at 0.25%, but consumers want lower home loan rates

The official cash rate will remain on hold at 0.25% for another month. The low rate has undoubtedly helped bring consumer interest rates down to be arguably more affordable than ever, but they are not cheap enough, according to some mortgage holders.

The board of the Reserve Bank of Australia (RBA) decided to leave the cash rate unchanged at the historic low of 0.25% at its monthly meeting today.

RBA Governor Philip Lowe said the board was committed to do what it could to support jobs, incomes and businesses and to make sure that Australia was well-placed for recovery from the downturn caused by the pandemic.

“It is likely that fiscal and monetary support will be required for some time,” Dr Lowe said.

“The Board will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3 per cent target band.”

The cash rate has never been lower, and neither have home loan interest rates.

In fact, a customer-owned bank in Tasmania made history last week by becoming the first-ever lender on Canstar’s database to offer interest rates starting with a ‘1’, available on some fixed rate home loans.

In June alone, we saw 23 cuts to variable interest rates for homeowners and 24 for investors, by averages of 0.18 percentage points and 0.39 percentage points for customers paying principal and interest.

Yet new research conducted by Canstar, where more than 2,700 mortgage holders were surveyed, found 82% of respondents wanted a lower home loan rate.

At a time when every dollar counts, 24% of mortgage holders said their interest rate was too high, 58% said their rate could be lower but was okay and only 18% said their rate was one of the lowest on the market.

Canstar finance expert Steve Mickenbecker said mortgage holders shouldn’t settle for ‘okay’ when it came to what was most likely their biggest bill each month.

“Today’s average variable home loan interest rate of 3.46% might sound okay when you remember repaying your loan at an interest rate of 8% some years ago, but it doesn’t compare to the record low rates of today,” Mr Mickenbecker said.

Canstar analysts crunched the numbers and found homeowners paying principal and interest on a $400,000 loan who swap from the average variable rate of 3.46% to the lowest variable rate in our database of 2.17% (comparison rate 2.17%), which is available with a loan-to-value ratio of up to 70%, they could save $274 per month in repayments or $3,288 annually.

“If you’re settling for a rate of 3.46% you could be throwing out about $3,288 a year compared to the lowest variable rate of 2.17%, and who can afford that right now?” Mr Mickenbecker said.

Mr Mickenbecker said if consumers know they are paying too much, now could be a good opportunity to put this knowledge into action, at a time where many lenders are keen to undercut their competitors’ rates.

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The comparison tables below display some of the fixed rate home loan products on Canstar’s database with links to lenders’ websites, for refinancing owner-occupiers in NSW making principal and interest repayments on a loan of $350,000 with an 80% LVR. Choose between the 1-year fixed, 3-year fixed and 5-year fixed tabs to view results most relevant to you. The results are sorted by ‘current rate’ (lowest to highest), then by company name (alphabetically). 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.

• 1-year fixed
• 3-year fixed
• 5-year fixed