Fixed rate cut frenzy! Why most lenders aren’t slashing variable rates

This month, the Reserve Bank of Australia (RBA) made the extraordinary decision to cut it’s official cash rate twice - in response to the outbreak and spread of COVID-19. 

However, Aussie home loan lenders have responded to the latest “emergency rate cut” a bit differently than they usually would. 

According to the Mozo database, the majority of lenders who have cut rates since the most recent RBA decision have dropped their fixed rate offerings, while only a handful have slashed variable rates. 

Currently, the lowest 3 year fixed rate in our database sits at 2.09% (2.41% comparison rate*), pushing rates closer to dropping below the 2.00% line. 

Mozo’s Banking Expert, Peter Marshall, says this is to be expected in a very low interest rate environment as banks attempt to maintain their net margins while still offering their deposit customers interest. 

“The government has also made a pool of funds available to banks, fixed at a rate of 0.25% for up to three years - these factors have resulted in many lenders choosing to cut fixed rates,” he said. 

“While we have not yet seen any fixed rates slip below the 2.00% mark, I expect that it will happen. And if it does it would be a great time to consider fixing all or part of a mortgage as it’s unlikely rates will go lower than that.” 

Amongst the lenders that have responded to the recent RBA rate change, ALL of the big four slashed their fixed mortgage rates.  

And currently ANZ are offering the lowest 2 year fixed rate of 2.19% (4.00% comparison rate*) for owner occupiers with an LVR of 80%, compared to 2.29% offered by CommBank (3.87% comparison rate*) , Westpac (3.45% comparison rate*) and NAB (3.91% comparison rate*).  

“Given that fixed rates are becoming cheaper than variable rates it’s easy to understand the appeal that we will see more borrowers opting to fix,” Marshall said. 

“It’s always important to keep in mind that there may be break costs if you need to leave the loan early, although if rates are increasing when you want to break those costs will be minimal.” 

Also remember that reversion rates on home loans are generally higher than the rates you locked in, and in some cases higher than standard variable rates. 

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Want to compare some killer fixed mortgage rates? Take a look at the table below or jump over to our home loan comparison tool for even more options!