RBA rate cut: Best ways to save on your home loan
Home loan borrowers should be taking swift action after the Reserve Bank of Australia today dropped the cash rate to a new historic low.
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Home loan borrowers should be taking swift action after the Reserve Bank of Australia today dropped the cash rate on Melbourne Cup Day.
The last time the central bank slashed the rate on Cup Day was back in November 2011 – this is when the downward spiral of rate drops began.
The central bank has cut the cash rate by 0.15 basis points down to 0.1 per cent and experts say it ultimately means even cheaper deals for customers.
RBA governor Philip Lowe said, “Given the outlook, the Board is not expecting to increase the cash rate for at least 3 years”.
“Recent economic data have been a bit better than expected and the near-term outlook is better than it was three months ago,” he said in his issued statement.
“Even so the recovery is still expected to be bumpy and drawn out and the outlook remains dependent on successful containment of the virus.”
He also acknowledged the cut would hit savers, particularly retirees who rely on interest rates.
“We understand their pain,” Dr Lowe said.
“The underlying driver is this, there is are a lot of people around the world who want to save and not many people want to invest.
“The harsh and unfortunate reality here is you are going to get a low return on your saving, so the solution is to get businesses to invest and to have other individuals want to use their income to spend rather than save.”
Treasurer Josh Frydenberg said he expects the big four banks to pass on the rate cut to borrowers, both those with mortgages and business loans.
Here’s what you should know and do to ensure you’re getting the best deal possible.
1 KNOW YOUR RATE
Aussie’s chief executive officer James Symond says borrowers must check what deal they are on before picking up the phone or speaking to an expert.
Before Tuesday’s cut was announced Symond says, “owner occupiers should be paying a rate with a “2” in front and investors should have a “3” in front”.
Canstar’s database shows the lowest owner occupier one-year fixed rate is 1.77 per cent by Reduce Home Loans.
And for variable rate loans the cheapest rate is by Homestar Finance.
This is for borrowers with a loan-to-value ratio of 60 per cent or less – the rate is now 1.79 per cent.
If you’re not getting rates as Symond suggested it is time to take action.
2 WILL YOU GET THE RATE CUT?
Canstar’s editor-at-large Effie Zahos says it’s often a waiting game to see what your lender does when the RBA moves.
“Does your lender automatically pass on the rate cut,” she says.
“And are you going to find your repayments are reduced without you wanting them to be.
“It’s important to understand the bank’s policy on how they handle these rate cuts.”
Zahos says if possible the best thing to do is to keep repayments at a higher amount than the minimum repayment required so you can really “knuckle down” on getting rid of the debt quickly.
3 GET EXPERT HELP
The next step is to ensure you can get assistance to drive yourself a better deal.
Symond says, “Information is power. I suggest if someone has an existing loan they speak to their existing lender or broker.
“Find out how your loan compares to a new loan in the marketplace to understand how competitive the loan is”.
For some borrowers this could be daunting so don’t be afraid to ask for help.
4 SERVICEABILITY/RATES
There are some rate deals with a “1” in front and Zahos says banks “will be looking for good serviceability as well”.
“Believe it or not some lenders will not give you a loan if you’re on JobKeeper,” she says. Having a good repayment history and steady income will also make the borrower appealing to a lender – whether it be when negotiating with their existing bank or contacting a new financial institution.
Symond says borrowers need to have a “clean credit history and a reasonable deposit”.
“Borrowers are absolutely in the driver’s seat,” he says.
5 WHETHER TO FIX
Many fixed rate deals remain cheaper than variable offers but Symond says borrowers should err with caution before locking in any deal.
“I think we are in a low interest rate environment for some time, be very wary of fixing a loan,” he says.
“It limits your flexibility once you fix in a loan.
“I think fixing a loan is a great idea in the right circumstance but you need advice before you do that so you don’t get stuck.”.
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