The Reserve Bank of Australia delivers another cash rate cut to borrowers

With three of the big four banks failing to pass on the full interest rate cut, now is the time for a mortgage overhaul. Here are the best home loan deals you can get right now.

ANZ says it will pass on today’s interest rate cut in full after the Reserve Bank dropped the cash rate to a new low of 1 per cent.

The bank said it would reduce all variable interest home loan rates in Australia by 0.25 per cent from Friday, July 12.

Commonwealth Bank, NAB and Westpac stopped short of passing on the full interest rate cut, citing the need to balance the interests of borrowers and savers.

CBA was the second of the big four banks to drop its rates, saying it would reduce all standard variable rate home loans by between 0.19 per cent and 0.25 per cent.

Shortly afterwards, the NAB tweeted that it will reduce its variable rate home loans by 0.19 per cent per annum, effective on July 12. This is on top of the 0.25 per cent reduction last month.

Westpac went a step further than the RBA cut, reducing rates for investment interest only loans by 0.30 percentage point.

Borrowers have been handed a second cut in as many months after the Reserve Bank board

lowered the official cash rate in a desperate move by the RBA board to rev up the economy.

For ANZ borrowers getting the full cut, the 0.25 per cent drop will deliver those with a $300,000 30-year owner occupier loan paying principal and interest a saving of $44 per month.

This will lower their monthly repayments to $1413 based on a mortgage with the average variable rate of 4.14 per cent falling to just 3.89 per cent.

MORE: Borrowers smash down their mortgage debts to record levels

For borrowers with a $600,000 mortgage this will save them $86 per month and reduce their monthly repayments to $2827.

An increase in the unemployment rate in April to 5.2 per cent, low economic growth and stagnant wages has forced the RBA’s hand at slashing the cash rate.

Home loan customers should check their interest rate and make sure they are getting a competitive deal from their lender.

Last month ANZ and Westpac dropped their variable rates by 0.18 per cent and 0.2 per cent respectively, while the Commonwealth Bank and National Australia Bank passed it on full.

Home Loans Experts’ managing director Otto Dargan said it was “no surprise the RBA moved”.

“The question is will rate cuts have the same impact on the economy that they did in the past,” he said.

“Many lenders don’t decrease the size of your repayment if your loan has principal and interest repayments so you don’t actually have more money in your pocket, instead you pay off the loan faster.”

For borrowers paying more than the minimum amount on their loans, lenders usually keep their repayments at the higher levels when there’s a rate fall meaning you can pay down your principal at a faster rate.

RateCity’s spokeswoman Sally Tindall said “a lot of lenders are going to find it hard to pass on this rate cut in full”.

“Customers who were lucky enough to pocket a full rate cut last month shouldn’t bank on it happening again this time around,” she said.

“Now is a great time to give your mortgage an overhaul.

“Even if your bank is passing on the cut, your rate still might not stack up against the competition.

“Banks are increasingly reserving the lowest rates for new customers so you might find you can get an even lower rate by switching lenders.”

She said today’s rate drop could result in the lowest variable rate on the market falling to just 2.84 per cent.

“With more RBA rate cuts on the horizon, it’s likely rates starting with a “2” will become the new norm,” Ms Tindall said.

@sophieelsworth

Lowest owner occupier principal and interest variable rates

1. Reduce Home Loans, 2.89 per cent

2. Well Home Loans, 3.19 per cent

3. Mortgage House, 3.19 per cent

4. Pacific Mortgage Group, 3.19 per cent.

5. Freedom Lend, 3.19 per cent.

6. HomeStar, 3.24 per cent.

7. TicToc, 3.27 per cent.

8. loans.com.au, 3.28 per cent.

Source: RateCity.com.au.

Lowest owner occupier principal and interest three-year fixed rates

1. Bank of Queensland, 2.99 per cent.*

2. Virgin Money, 2.99 per cent.*

3. loans.com.au, 3.19 per cent.

4. Reduce Home Loans, 3.19 per cent.

Source: RateCity.com.au.

*This applies to loans above $300,000.

Originally published as The Reserve Bank of Australia delivers another cash rate cut to borrowers