The Reserve Bank of Australia is expected to cut the cash rate on Melbourne Cup Day and deliver borrowers savings
Home loan customers are expected to see an interest-rate cut on Melbourne Cup Day that will deliver big savings. Find out the best home loan options for you.
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Borrowers could see their home loan rates fall further as many experts expect a cash rate cut on Melbourne Cup Day.
The Reserve Bank of Australia has the cash rate sitting at a record low of 0.25 per cent and there’s strong predictions it could drop to 0.1 per cent next week.
If this does happen it will remain to be seen if financial institutions pass on the cut to mortgage customers in full, particularly given they already have squeezed margins on home loan products.
There’s hundreds of fixed and variable loan deals in the “2” per cent range and more people are opting to lock in their deals.
Mortgage Choice data shows in January 12 per cent of customers fixed their loans – this increased to 32 per cent in September.
First home buyers Maddy Hall, 24, and partner Sam Walters, 23, recently purchased their first property, a home and land package for $650,000 at Cranbourne South in Melbourne’s southeast.
Hall says they opted to go for a variable rate loan with Bankwest at 2.73 per cent and their fortnightly repayments are $1000.
“A variable rate loan suited our lifestyle and there’s flexibility with having an offset account and redraw facility,” she says.
“Especially with rates expecting to go lower we thought this was the best way to go.”
Most packaged variable rate loans come with a daily offset account – a day-to-day transaction account linked to the mortgage and also a redraw facility.
If a borrower has a $300,000 loan and $10,000 sitting in an offset account they only pay interest on $290,000.
The redraw account also enables borrowers to withdraw excess funds overpaid on the loan if needed.
Mortgage Choice broker David Lelean says variable rate loans are often best for borrowers “wanting to pay down their loans as quickly as possible”.
“They might be planning on selling soon or starting a family so they need flexibility with their loan and that’s where variable rates come into play,” he says.
“With a variable rate you can sell or refinance to another lender, you can renegotiate your product and there are no extra costs to do that.”
Lelean says on a fixed-rate loan often lenders won’t give borrowers the option of a redraw account.
“The variable rate loan gives the borrower the full advantage of paying down the loan as fast as you can,” he says.
“A lot of banks will charge an annual fee between $250 and $400 to give you that offset facility and on average you need about $8000 to outweigh that cost at any time.”
1300homeloan director John Kolenda says if there is a rate cut on Tuesday he expects both fixed and variable rate loan deals to fall further.
“I think we are in for some really good reductions that will be quite good for consumers,” he says
“I would wait until after the RBA decision on Tuesday before doing anything.”
VARIABLE RATES V FIXED RATES PROS & CONS
Variable rates
PROS
• Borrowers can make unlimited extra repayments.
• Often has an offset account and redraw facility.
• When the lender drops the rate it benefits the customer.
CONS
• The rate can move around which changes the cost of the loan.
• Repayments can change.
• It can be harder to budget.
Fixed rates
PROS
• The rate won’t change during the fixed term.
• There’s certainty with interest charges.
• Repayments stay the same.
CONS
• There’s no benefit if rates fall.
• Fees apply to break the fixed period.
• You cannot withdraw on any additional repayments made.
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