Major lenders reduce rates, but millions may not see lower repayments without action
Millions of Australians with variable rate home loans at Commonwealth Bank (CBA) and ANZ will see their interest rates fall by 0.25 percentage points from today, following the Reserve Bank of Australia’s (RBA) recent cash rate decision.
CBA has also lowered its fixed home loan rates by as much as 0.45 percentage points, making its lowest fixed rate now match its new variable rate of 5.34%.
Customers at NAB and Westpac will benefit from rate reductions next week, with NAB’s changes effective from Monday and Westpac’s from Tuesday.
According to Canstar, the lowest variable and fixed rates among the major banks now stand at 5.34% for CBA, while Westpac offers a 5.34% variable and 5.59% fixed rate for two years. NAB’s lowest variable is 5.69%, with a two-year fixed at 5.19%. ANZ’s lowest variable is 5.50%, also with a 5.19% fixed rate for two years.
The most competitive rates in the market remain below those of the major banks, with some lenders offering variable rates as low as 4.99% and fixed rates at 4.69% for two years.
Canstar reports that 86 lenders have announced their response to the RBA’s August rate cut, but fewer than half have already lowered their variable rates. Most lenders have indicated they will pass on the full reduction, with exceptions including Aussie Home Loans, which is applying only a 0.10-percentage-point cut to its Aussie Select variable rate mortgages, and Credit Union SA, which has stated that a small number of investor loans may not receive the full cut.
For a typical owner-occupier with a $600,000 mortgage, the latest reduction translates to a decrease of $89 in minimum monthly repayments. The cumulative effect of the three most recent rate cuts – February, May, and August – amounts to a total reduction of $272 per month. For a $1 million loan, the monthly saving reaches $453.
Despite the lower interest rates, not all borrowers will automatically benefit from reduced repayments. CBA and ANZ will adjust interest rates for all variable-rate customers today, but repayments will remain unchanged unless the borrower requests a reduction. NAB will follow the same approach from Monday. In contrast, Westpac will automatically lower repayments for customers who pay the minimum via direct debit.
Recent data from CBA shows that only a small proportion of eligible borrowers requested a reduction in their repayments after the May rate cut. At NAB and ANZ, the figures were 10% and 11% respectively.
Borrowers who maintain their previous repayment amounts after a rate cut can potentially save substantial sums over the life of their loan. For example, a $600,000 mortgage holder who continues to pay the same amount after all three recent cuts could save $76,536 in interest and pay off the loan three years and three months earlier. For a $1 million loan, the interest saving could reach $127,560.
“CBA and ANZ variable rate borrowers logging into their banking apps today will find August’s rate cut has now been applied,” said Sally Tindall (pictured right), data insights director at Canstar. “That’s an end of week change that’s sure to put more than a few smiles on faces nationwide.
“Leaving repayments unchanged after a rate cut is a great way to save thousands in interest, particularly for owner-occupiers. It’s a rare case where doing nothing might actually work in your favour, however, it’s worrying that some people might not be making an active choice.
“The key is to make it a conscious decision. If you need the cash, or if you want that extra money in your offset account, rather than directly in your mortgage, ask your bank to drop your repayments and redirect the funds to where you need them.”
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