What should you do with the interest rate drop?

HOME loan customers — be prepared for more interest rate reductions after the cash rate fell to a record low of 1.5 per cent today.

HOME loan customers — be prepared for more interest rate reductions after the cash rate fell to a record low of 1.5 per cent today.

The economists’ predictions were right that the Reserve Bank of Australia board would lower the cash rate again and now borrowers will be anxiously waiting to see if their lender passes on the drop in full.

Commonwealth Bank is one of the first lenders to move but revealed they won’t be passing on the rate cut in full.

The lender will drop owner occupier rates by 13 basis points to 5.22 per cent, holding back 12 basis points from customers.

Business customers will also receive the same rate cut and the rates will not become effective until Friday, August 19.

National Australia Bank is the second of the big four to move, announcing they will pass over only a 0.1 per cent cut to their customers, moving their standard variable rate to just 5.25 per cent. The move doesn’t kick in until August 19.

ANZ also announced it was dropping it’s SVR by just 0.12 per cent to 5.25 per cent. The rate cut will become effective on August 12.

Westpac will drop their SVR to 5.29 per cent - a fall of just 0.14 per cent, effective August 23.

But Treasurer Scott Morrison has told Sky News that the banks should pass on the full interest rate cut. He also said he didn’t see the rate cut as being a sign of a struggling economy. He said the moves by the banks so far is “not the traditional response”.

Here’s what you should do to reduce your home loan even faster.

TAKE ACTION

Banks have proven they can be stingy so borrowers may not enjoy the full 25 basis point drop.

Know your interest rate and hunt around for a better deal if you think you can save yourself money.

Financial comparison website Mozo’s spokeswoman Kirsty Lamont says “be prepared to act if your lender doesn’t pass through the cut.”

“The big banks are unlikely to pass through the full rate cut to mortgage customers this time around as increased costs of funding pressures are squeezing their margins,’’ she says.

“So if you lender holds out shop around and get yourself a better deal.”

KEEP YOUR REPAYMENTS THE SAME

Despite rates resting at rock-bottom levels there’s no time for complacency, borrowers should be maximising this low-rate environment.

Lamont suggests customers keep their repayments at higher levels than the minimum amount so they can chip away at the principal.

Mozo spokeswoman Kirsty Lamont urges borrowers to keep their repayments higher than the minimum.

“Even if your lender passes on the rate cut keeping your repayments the same is an easy way to slash your mortgage down to size,’’ she says.

“By maintaining the current monthly repayment on a $300,000 loan the average mortgage (with a rate of 4.51 per cent) customers could save a hefty $15,071 in interest over the life of the loan.”

GET HELP

Homeloanexperts.com.au’s managing director Otto Dargan says all customers need to know their own home loan interest rate and ask for help if you want to score yourself a better deal.

Seek professional help if you are unsure on how to get yourself a better home loan deal.

“Borrowers should check their rate with their mortgage broker to see if it’s still competitive,’’ he says.

Dargan says Australia has the lowest fixed rates they have ever seen — many are well below the four per cent mark so it’s definitely worth seeing if you can get a rate with a “3” in front.

Rising Tide Financial Services’ managing director Chris Browne says often what customers are being charged on their home loan can be improved.

“Banks prey on apathy so take advantage of these low interest rates,’’ he says.

@sophieelsworth