The Reserve Bank of Australia (RBA) has left the cash rate at the record low of 0.10% in June, again saying it expects the rate will stay low until wages growth picks up, likely in 2024 at the earliest.
Some commentators and industry analysts aren’t so sure, anticipating a rate hike could occur as early as next year.
While rates remain low, for however long, new Canstar research shows the potential value of taking this opportunity to switch to a better home loan rate.
For instance, refinancing today from an average variable rate on Canstar’s database of 3.22% to the lowest rate in the market – a one-year fixed rate of 1.67% (3.84% comparison rate) from bcu – could amount to an estimated $7,270 in interest savings in the first year. Given this is a one-year fixed rate loan, mortgage holders may then want to review their loan after those first 12 months.
Canstar money expert Effie Zahos said it was a good idea to take a look at your home loan right now, especially if you’re paying a rate at or above 2%. There are currently 185 home loans on Canstar’s database with a rate below 2%.
When taking the looking glass to your home loan, borrowers might be wondering whether to go fixed or variable. Longer-term fixed rates have already started to rise, the database shows.
“From today there are no four or five year fixed rates under 2%, and three-year fixed rates could be the next to start increasing,” Ms Zahos said.
“Banks’ low-rate term funding from the Reserve Bank offering them money at just 0.10% interest ends this month, so this will no doubt put pressure on interest rates.”
In May, 15 lenders cut 71 variable rates by an average of 0.21 percentage points, but 16 lenders increased 159 fixed rates by an average of 0.20 percentage points, according to Canstar data.
Ms Zahos said if you do chase a lower rate and it happens to be fixed, the key here is to ask your lender whether you can make extra repayments without penalty.
“The dilemma for mortgage holders is not so much trying to secure a cheap rate but more so paying off as much as they can now to secure themselves a buffer before rates do go up. Focus on knocking off your home loan debt before 2024, when the Reserve Bank has said it’s likely to increase the cash rate for the first time in eleven-and-a-half years,” Ms Zahos said.
“The economy is running well and may actually reach a turning point sooner than the RBA’s ‘2024 at the earliest’ timeline. If it does, the real winners here will be those who have put themselves in a strong position to manage their debt in a rising rate market. There’s little point in securing yourself a low rate only to keep your repayments at the minimum.”
On the other side of the coin, some investors are actually seeing signs of interest rate relief.
UBank cut some of its investor rates by as much as 0.54 percentage points today, which follows similar moves made by NAB last week with cuts of up to 0.30 percentage points to some of its investor rates.
Top homeowner mortgage rates on Canstar’s database
Taking into account the home loan moves in the past month since the RBA last met, these are the top rates for owner-occupiers currently available on Canstar’s database:
Top variable rates
- 1.77% (1.86% comparison rate^) – Reduce Home Loans’ Super Saver Variable, 60% maximum loan-to-value ratio (LVR)
- 1.79% (1.84% comparison rate) – Homestar Finance’s Star Gold Home Loan, 60% maximum LVR
- 1.89% (1.89% comparison rate) – Pacific Mortgage Group’s Variable P&I, 60% maximum LVR
- 1.89% (2.28% comparison rate) – Northern Inland Credit Union’s Dream Value Owner Occupied PI Special Offer, 60% maximum LVR
- 1.94% (1.98% comparison rate) – Mortgage House’s Lifestyle First Refinancer Special, 80% maximum LVR
Source: www.canstar.com.au – 1/06/2021. Based on owner-occupier loans on Canstar’s database, available for a loan amount of $500,000, at any LVR and with principal & interest repayments; excludes first home buyer-only loans. One product per provider is listed. Table is sorted in ascending order by rate, followed by comparison rate. ^Comparison rate calculated based on a loan amount of $150,000 and loan term of 25 years. Read the Comparison Rate Warning.
Top fixed rates for each term (one to five years)
- 1.67% (3.84% comparison rate^) – bcu’s Residential Fixed P&I one year, 95% maximum LVR
- 1.78% (3.66% comparison rate) – bcu’s Residential Fixed P&I two years, 95% maximum LVR
- 1.79% (3.33% comparison rate) – Credit Union SA’s Fixed Home Loan Package P&I Special Offer three years, 80% maximum LVR
- 2.04% (2.07% comparison rate) – Hume Bank’s myBlue P&I Fixed four years, 60% maximum LVR
- 2.24% (2.33% comparison rate) – UBank’s UHomeLoan Fixed P&I five years, 80% maximum LVR
Source: www.canstar.com.au – 1/06/2021. Based on owner-occupier loans on Canstar’s database, available for a loan amount of $500,000, at any LVR and with principal & interest repayments; excludes first home buyer-only loans. ^Comparison rate calculated based on a loan amount of $150,000 and loan term of 25 years. Read the Comparison Rate Warning. Top rate in each term selected based on the product with the lowest rate, followed by comparison rate.