As the RBA brings down the official cash rate to a new low of 1.5% in order to stir up the price growth, home owners and to-be home owners get another reason to rejoice.
Previously, when the RBA had slashed the rates to 1.75%, many banks had passed on the full cut to customers. It cannot be predicted whether the lenders will follow the same route this time, however, the 4 biggies have decided to pass on at least half of the cut to customers with CBA lowering its standard variable mortgage rate by 13 basis points, NAB by 10 basis points, ANZ by 12 basis points and Westpac by 14 basis points on principal and interest loans.
Customers dealing with smaller banks may have even more to gain as Bank Australia has decided to share the full cut with customers bringing down its mortgage rate to a competitive 4.74%. It is likely other small banks will follow suit, pushing borrowers to rethink their home loans and switching lenders for better deals.
Is it time to change for borrowers?
August indeed is a happy month for home owners and to-be home owners who would be scouring for better deals. And with further rate cuts anticipated in the near future, a lot of refinancing activity can be predicted in the home loan market. In fact, if the full rate cut is passed, the standard discounted variable rate will come down to 4.35% encouraging first home owners to enter the market making repayments much more affordable.
Potentially, refinancing your home loan of $300,000 to a rate of 4.75% from 5.00% (which means taking advantage of the full 25 basis point rate cut), one can save up to $43 a month and a sizeable amount of $13,025 over a term of 25 years. (Use this handy calculator to see how much you can save by refinancing your home loan).
Refinancing your home loan to a lower rate can save tons of money if you plan it right. Refinancing is not free, and it is important to ensure that the cost of refinancing does not outweigh the savings.
Comparing home loans online is a good starting point to get the best deals in the market. However, beware of the cheapest loans, as they may not have all the features you need. A low interest rate will save you money, but having an offset account and the ability to make additional repayments and redraws for free can help save much more in the long run. Do you know the top features you need in a home loan?
And what about the savers?
Considering the interest rates to be at an all time low, repayments are no longer the deterrent holding back Australians from achieving their coveted dream of owning property. It is actually the deposit that plays the major barrier preventing most first time buyers from entering the market.
The rate cut by the RBA makes the market much more favourable for borrowers but banks have decided to balance out the expectations of savers as well by increasing the rates on term deposits (NAB plans to increase the rate on 8 month term deposits by up to 85 basis points). If you are planning to buy your sweet abode in the near future, it is time to compare accounts and park your money with a bank that gives you max returns on your savings.
With the market at an all time low, it may be worthwhile to take a low deposit loan by paying LMI. Speak to a mortgage broker to evaluate your options and see what best suits your financial condition. HashChing lets you compare weekly home loan deals offering the most competitive rates in the market. And while only 34% of the loans are refinanced according to ABS statistics, don’t be one of the lazy borrowers and lose out on huge savings.
By Vidhu Bajaj