UBank launches new lowest home loan rate on Canstar's database

UBank has cut fixed home loan rates, making its three-year fixed interest rate for owner-occupier borrowers the lowest on record in Canstar’s database. Applicants will have to be ready to get in quick, with the offer available for a limited time only.

UBank, which is a division of National Australia Bank, has announced a range of cuts to its fixed rate home loans for owner-occupiers and investors, which will also be available to refinancers already in the process of applying for or settling a new fixed rate home loan with the bank.

The cuts have seen UBank introduce the lowest home loan rate across all variable and fixed loans on Canstar’s database: a three-year fixed loan for owner-occupiers paying principal and interest at 1.75% (2.22% comparison rate), available to apply for from today.

To lock in the record-low rate, customers would need to have completed their application in full by Friday, 26 February and if approved, need to have the loan settled within 90 days after submitting the application.

Canstar finance expert Steve Mickenbecker said this meant it would be best-suited to people who were no longer exploring but about to buy.

The offer beats the previous lowest home loan rate, being Reduce Home Loans’ 1.77% rate (1.83% comparison rate) on its Rate Cutter Variable loan, which is still available and remains the lowest variable rate on the database.

Mr Mickenbecker said the offer by UBank was unique in that the new lowest home loan rate is now offered by a subsidiary of a big four bank – National Australia Bank – not a smaller lender.

“Most of the previous running on interest rates has been done by the smaller lenders and very often the non-bank lenders,” he said. “So it shows how hungry the large banks are for business, which could make it pretty tough for smaller lenders moving forward.”

People paying the average home loan rate paying “way too much”

Mr Mickenbecker said he expects we’ll continue to see more banks reducing interest rates for mortgage holders in 2021, but probably not to the extent of last year, where three cash rate cuts from the Reserve Bank helped to push lenders’ interest rates lower.

And with signs the property market is already heating up, Mr Mickenbecker said we should expect to see more and more refinancing.

“People who are still paying the average home loan interest rate are just paying way too much,” he said.

“Many people haven’t really taken full advantage of the low interest rates available yet, but the switch could make a difference of thousands of dollars in repayments.”

According to Canstar’s database, there are 120 owner-occupier home loans with an interest rate under 2% available right now for loan amounts of $400,000. There are many more competitively priced between 2% and 2.5% as well.

To visualise this, here’s what the interest rate breakdown from our database looks like for those chasing a three-year fixed rate home loan at the moment:

And this is what the interest rate spread looks like for owner-occupiers looking for a variable rate home loan:

Breaking down the top rates specifically, this list shows the most competitive home loan interest rates on Canstar’s database for owner-occupiers at the time of writing, available for loan amounts of $400,000. It also breaks down the difference in monthly mortgage repayments based on these interest rates.

Top 5 lowest owner-occupier home loan rates

Source: www.canstar.com.au – 22/01/2021; 8am AEST. Based on owner-occupier home loans available for a loan amount of $400,000 on Canstar’s database. Top five selected and table sorted in ascending order by rate, followed by comparison rate. Comparison rates calculated based on a loan of $150,000 with a term of 25 years. Read the Comparison Rate Warning. Monthly repayment estimate excludes the impact of fees and assumes principal and interest repayments on a $400,000 loan over 30 years, with rates remaining the same over that time.

Should I lock into a fixed rate loan?

Some borrowers may be tossing up whether to lock into a fixed rate such as this one or go for variable in the hopes that rates might reduce further, but Mr Mickenbecker said it’s not easy to pick the top or bottom of the home loan market.

He suggested a good way to mitigate risk when fixing was to look for a loan that gives you the flexibility you need.

“You generally want to make sure you retain enough flexibility with your lending to be able to make extra repayments, because even though today you might not think you can do that, in a year or two’s time you might find you’ve got a surplus of money,” he said.

“Not all fixed-rate loans allow you to make a large repayment in advance of the schedule, so if you think you might be in a position at some stage to do that then maybe you should be looking at a mix between fixed and variable, so you can have flexibility with the variable portion even if you can’t with the fixed.”

UBank does allow customers to make an additional $20,000 in repayments during the fixed-rate period before break costs are incurred. These repayments can be made weekly, fortnightly or monthly. But none of UBank’s fixed rate products currently offer redraw facilities or offset accounts, which are features some borrowers may like in order to be able to access their money again if need be.

For the full round-up of UBank’s new home loan rates, effective from 22 January, see below.

All of UBank’s new fixed home loan rates

For owner-occupiers:

• 1-year fixed, owner-occupied principal and interest: 1.99% (2.33% comparison rate)
• 1-year fixed, owner-occupied interest only: 2.14% (2.35% comparison rate)
• 3-year fixed, owner occupied principal and interest: 1.75% (2.22% comparison rate)
• 3-year fixed, owner occupied interest only: 2.09% (2.30% comparison rate)
• 5-year fixed, owner occupied principal and interest: 2.24% (2.33% comparison rate)
• 5-year fixed: owner occupied interest only: 2.39% (2.38% comparison rate)

For investors:

• 1-year fixed: investor principal and interest: 2.14% (2.71% comparison rate)
• 1-year fixed: investor interest only: 2.29% (2.72% comparison rate)
• 3-year fixed, investor principal and interest: 2.09% (2.60% comparison rate)
• 3-year fixed, investor interest only: 2.24% (2.64% comparison rate)
• 5-year fixed, investor principal and interest: 2.49% (2.67% comparison rate)
• 5-year fixed: investor interest only: 2.64% (2.73% comparison rate)