A total of 23 lenders have now cut at least one variable rate since 1 May in a sign competition is ramping up despite the RBA cash rate hikes in February, March and May.
This includes cuts from AMP, Bendigo, BOQ, ING, Virgin and most recently, the Teachers Mutual Group.
The catch?
The cuts are only for new borrowers, or those willing to turn themselves from an existing customer into a new one.
Not one of the new customer rate cuts have come from a big four bank.
How much could someone save by refinancing?
While switching lenders will require borrowers to go through the application process again, which includes gathering payslips and expenses, the move could save a typical borrower thousands, even in the space of 24 months.
Canstar research shows an owner-occupier who took out a loan five years ago and hasn’t renegotiated since is likely to be on a rate of 6.98%. Yet the Canstar database currently has 41 lenders offering variable rates under 6%.
Assuming a borrower has a $600,000 balance today with 25 years remaining on their loan, refinancing to a rate under 6% could save at least $10,713 over the next two years, even after allowing for $1,150 in switch costs. This assumes rates move in line with CBA’s current cash rate forecast.
Potential impact from | |||
|---|---|---|---|
Variable | Repayments | Cost - next | |
Complacent | 6.98% | $4,233 | $79,686 |
Refinance to a competitive rate | 5.99% | $3,862 | $68,973 |
Difference | -0.99 | -$371 | -$10,713 |
Source: Canstar.
Notes: calculations are estimates based on an owner-occupier paying principal and interest who took out a loan in June 2021 and today has $600k owing and 25 years remaining. Assumes the person has not renegotiated their rate since. Costs include $1,150 in switch costs, but not ongoing fees. Calculations assume rates change in line with CBA's cash rate forecast.
Lowest owner-occupier rates on Canstar.com.au
Lender | Rate from |
|---|---|
LCU, Pacific Mortgage Group | 5.69% |
Horizon Bank* | 5.74% |
Unity Bank | 5.80% |
Virgin Money, Police Bank*, Border Bank* | 5.84% |
Lowest investor rates on Canstar's database
Lender | Rate from |
|---|---|
LCU | 5.85% |
Pacific Mortgage Group, Northern Inland | 5.94% |
Virgin Money, Easy Street, Horizon Bank* | 5.99% |
Unloan, Police Credit Union | 6.04% |
Source: Canstar. Rates based on owner occupier loans. LVR and other requirements apply. Excludes green loans. *rates are for first home buyers.
Another RBA hike still a live possibility
While three of the big four banks’ economic teams – that’s CBA, NAB and ANZ – believe the RBA has finished hiking the cash rate, Westpac expects at least one, if not two more hikes, with the next one arriving at the end of the very next RBA Board meeting on 11 August.
Certainly, borrowers with a mortgage should prepare for the possibility of higher rates, with the RBA continuing to re-iterate it will do what is necessary to achieve price stability “including increasing the cash rate target further if required”.
For someone with a $600,000 mortgage and 25 years remaining at the start of the hikes, a 0.25 percentage point cash rate hike in August would increase a borrower’s monthly repayments by $92. Across what would then be four hikes for the year in February, March, May and potentially August, the total monthly increase would be $364.
Impact of a further 0.25 hike | ||
|---|---|---|
Loan size at | Hike in Aug | Cumulative increase |
$600,000 | +$92 | +$364 |
$1 million | +$153 | +$606 |
Source: Canstar. Notes: based on an owner-occupier paying principal and interest with 25 years remaining in Feb 2026 at the RBA avg variable rate. Assumes next rate hike falls in August. Calculations assume banks pass on the hikes the month after. Changes are to minimum repayments.
It doesn't pay to be loyal to your lender
Canstar's Data Insights Director, Sally Tindall, says, “Smaller lenders are entering the mortgage wars in a bid to take on the big banks.”
“They’re defying the RBA’s recent string of rate hikes to trim variable rates for incoming borrowers. The problem is, loyal existing customers are unlikely to see a single cent of these cuts.
“Our data shows a staggering 23 lenders have sharpened their rates since the start of May, creating a gap between what loyal customers are paying and the deals available to new ones.
“A complacent borrower who hasn’t touched their loan in five years could easily be sitting on a rate near 7 per cent. Yet right now, there are over 40 lenders willing to offer rates under 6 per cent.
“Yes, pulling together payslips and bank statements to switch lenders takes a bit of legwork, but it can often reap the biggest rewards. Refinancing a typical $600,000 loan to a competitive rate could put more than $10,700 back into your pocket over the next two years alone, even after factoring in the upfront switching costs.
“In this market, loyalty is a luxury few can afford, particularly with the possibility of another rate hike still looming large.
“Anyone hoping the RBA might be done with interest rate hikes needs to keep their optimism at bay and prepare for the possibility of another hike.
“At its last meeting, the central bank made it perfectly clear that it will do whatever it takes to bring prices down, including hiking the cash rate further if required.
“Looking at the latest inflation numbers, the trajectory is anything but pretty. Core inflation has climbed for the second month in a row, landing right back at 3.6 per cent – exactly where we were nearly a year ago.
“While much will depend on the upcoming employment and inflation data over the next two weeks, borrowers shouldn’t sit around waiting for the bad news to hit before they act.
“Preparing for higher rates needs to start today. If the RBA strikes again in August with a 0.25 percentage point increase, a typical borrower with a $600,000 mortgage will see their monthly payments jump by $92. Across what would be four brutal hikes this year alone, that adds up to an extra $364 a month drained from the household budget.”
