Why lenders are in a rates war over your home loan

By Katherine O'Chee ·
Young homeowner couple arm wrestling

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 …

Loans.com.au Smart Home Loan
Promoted
  • Variable rates from 2.48% (2.50% comparison rate*)
  • Optional offset account (0.10% additional interest applies)
  • 2020 Mozo Experts Choice Award winner for Best Low Cost Home Loan**

The loans.com.au Smart Home Loan not only serves up a competitive rate, but it also comes with zero application or ongoing service fees. While the best rates are available to refinancers with loan-to-value ratios (LVRs) of up to 80%, you can still snag a decent rate of 2.79% (2.81% comparison rate*) if your LVR is between 80-90% (just beware that you may have to pay Lenders Mortgage Insurance in the latter case). Either way though, you’ll be able to enjoy nifty features including free extra repayments and a free redraw facility. And for the price of adding 0.10% to your rate, you could also have an offset account at your disposal - a tool that goes a long way to helping you reduce interest costs.

Promoted
  • Variable rates from 2.49% (2.49% comparison rate*)
  • Free extra repayments and redraw facility
  • 2020 Mozo Experts Choice Awards winner for Best Low Cost Home Loan & Best Split Home Loan**

If you’re looking to score some serious savings on your home loan, then this offer from UBank, our Home Lender Bank of the Year**, could be your match. Variable rates start from an ultra low 2.49% (2.49% comparison rate*), with no pesky upfront or ongoing fees to worry about. Borrowers also have the option to split their loan up to four times, and make free extra repayments and redraws. Just be sure to have at least 20% in home equity before refinancing to this loan.

HSBC Fixed Rate Home Loan
Promoted
  • Fixed two-year rates from 2.09% (2.98% comparison rate*)
  • Free extra repayments (up to $10,000 p.a.)
  • 2020 Mozo Experts Choice Award winner for Best Fixed Rate Home Loan**

For refinancers with an LVR of 80% or less, the HSBC Fixed Rate Home Loan has one of the cheapest two-year fixed rates in the Mozo database. Unlike many other fixed rate loans, it doesn’t hold back on flexibility, giving borrowers the ability to make extra repayments of up to $10,000 per year and the option to match each repayment to their pay cycle. Fees are also minimal, with just a $300 discharge fee to budget for.

Athena AcceleRATES Variable Home Loan
Promoted
  • Variable rates from 2.34% (2.34% comparison rate*) for 60% LVR
  • Automatic discounts as loan is paid down
  • 2020 Mozo Experts Choice Award winner - Best New Home Loan, Home Loan Innovation**

If the thought of switching from loan to loan to get a better rate sounds like too much of a hassle, the Athena AcceleRATES Variable Home Loan does that heavy lifting for you. This loan rewards borrowers with rate discounts as they pay down their mortgage and their LVR decreases. For instance, once you reach an LVR below 60%, your variable rate drops to a stellar 2.34% (2.34% comparison rate*). This loan comes with no upfront, ongoing or discharge fees, and it also costs absolutely nothing for you to make extra repayments and access a redraw facility.

Homestar Star Essentials Home Loan
Promoted
  • Variable rates from 2.29% (2.32% comparison rate*)
  • Receive up to $1,500 cashback (conditions apply)
  • 2020 Mozo Experts Choice Award - Best Low Cost Home Loan**

Why stick with your current loan when you could refinance to a variable rate as low as 2.29% (2.32% comparison rate*)? Besides offering a great rate, the Homestar Star Essentials Home Loan packs a punch with flexible features including free extra repayments, a fee-free redraw facility and a split loan option. And for a limited time, refinancers could earn up to $1,500 cashback, as long as they apply by 31 October 2020 and settle the loan by 31 January 2021. This loan is available to borrowers with maximum LVRs of 80%.

Suncorp Back to Basics Home Loan - Cashback Offer
Promoted
  • Variable rates from 2.68% (2.69% comparison rate*)
  • Receive up to $3,000 cashback (conditions apply)
  • Insurance discounts up to 20%

If you love being rewarded, then you’ll love the Suncorp Back to Basics Home Loan. For refinancers with LVRs of 80% or less, rates start from a competitive 2.68% (2.69% comparison rate*). You could also score up to $3,000 in cashback, depending on your loan size - just remember to apply by 18 December 2020 and settle by 26 March 2021. This loan also comes with a bundling option, where you could receive up to 20% off your first car or home insurance premium with Suncorp once you refinance and sign up to its Everyday Option Account. Now that’s value!

^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.

*WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

**Initial monthly repayment figures are estimates only, based on the advertised rate, loan amount and term entered. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.

While we pride ourselves on covering a wide range of products, we don't cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.

Katherine O'Chee
Katherine O'Chee
Money writer

Katherine O’Chee is Mozo’s international money transfer and forex expert and business banking writer. She keeps Mozo’s readers on top of the latest news and writes in-depth features to inform and help Australians make smarter financial decisions. Her work has been published in major media outlets including Sydney Morning Herald, SBS News and Bangkok Post. She has a Bachelor of Arts (Media and Communications) from the University of Sydney.