Why lenders are in a rates war over your home loan

Although the official cash rate has stayed the same since March, competition in the refinance home loans market hasn’t slowed down at all, with lenders continuing to slash fixed and variable rates to new lows. 

In the past month alone, from 1 September to 15 October, 41 lenders in the Mozo database have reduced their home loan rates. 

Right now the average variable home loan rate in the Mozo database sits at 3.34% - a whopping 55 basis points below last October’s average.^

Average short-term fixed rates have slid even further to 2.48% for two year terms, dropping 84 basis points since this time last year.^

“Lenders are trying to attract customers at a time when the pool of quality borrowers has been drastically reduced due to COVID-19 and job losses,” Mozo’s property expert, Steve Jovcevski said.

“With vacancy rates rising and rent prices falling, many investors have also dropped out of the market, so lenders are now targeting owner occupiers, especially first home buyers and refinancers, with their rate cuts.”

But the banks aren’t just competing on the interest rates front. Cashbacks as high as $4,000 are being offered to refinancers. Some lenders including Westpac and AMP are also trying to stay ahead by lowering their serviceability floor rates to make it easier for owner occupiers to borrow larger amounts or to refinance. 

“At the moment, a lot of homeowners are ‘mortgage prisoners’ because the serviceability criteria has become so much stricter since COVID-19 began, compared to, say, a couple of years ago. But now with serviceability rates lowered, more people will be able to refinance instead of being stuck on their current loan,” Jovcevski said.

So how much can you actually save by refinancing?

Let’s say you have a $400,000 loan paid over 30 years and you’re refinancing from last October’s average variable rate of 3.89% to the current average of 3.34%. 

By making the switch, you could be saving $123 in monthly repayments and $44,545 in total interest over the life of your loan. That’s not even taking into account that variable rates right now go as low as 2.19%.^^

Keen to reap the financial benefits of this rates war? The first step is to make sure you’re in a good position to refinance. That means paying your bills in time, cutting back on expenses, getting rid of any unnecessary debt and earning as much income as possible.

From there, it’s just a matter of shopping around and finding the best deal for you. 

Scroll down for a list of our Editors’ top picks …

^Averages drawn from our home loans statistics page, as of 12 October 2020. They assume a $400,000 loan amount for owner occupiers with an 80% LVR, making principal and interest repayments.

^^Excluding introductory rates, the lowest variable rate in the Mozo database of 2.19% is currently offered by the Firstmac Broker Special Basic 80 Variable Home Loan (2.25% comparison rate*) and the Reduce Home Loans Super Saver Variable (2.26% comparison rate*). 

** For a full list of winners, head over to the 2020 Mozo Experts Choice Home Loan Awards page.