Will the banks pass on the RBA rate cut?

Tuesday 02 August 2016

Article by Mozo

Property owners across the country are surely cheering at the news the Reserve Bank of Australia has slashed the official cash rate to a new low of 1.50%, at its August board meeting.

However, with banks introducing their own rate increases in late 2015 independent of the Reserve Bank, experts have warned home loan lenders may play grinch and fail to pass on the RBA’s rate cut.

“When the Reserve Bank drops the official cash rate, all eyes immediately turn to the banks, but unfortunately recent experience suggests that the big banks are unlikely to pass on the full cut to home borrowers,” says Mozo Director Kirsty Lamont.  

“This is understandably frustrating for borrowers, as a 25 basis point rate reduction amounts to a significant saving of hundreds of dollars each year and thousands over the life of the loan.”

For instance, a borrower currently paying the average home loan interest rate of 4.52% on a $500k mortgage, would save $71 in repayments each month and $21,164 in interest over a 25 year loan, if their lender dropped their rate by 0.25%.

Give yourself a home loan rate cut

According to Lamont, there is one way borrowers can ensure they get a rate cut that is even greater than what their current lender can provide. Lamont explains, “if your lender fails to pass on the RBA’s rate cut, don’t pay the price of home loan loyalty, instead move to greener grasses by making the switch to a cheaper loan.”

“When you consider the best value lenders are right now offering rates under 4%, the savings you’ll make by switching to a cheaper loan will far surpass those you can get from a Reserve Bank rate cut, even if your lender does reduce its rates,” adds Lamont.

Using the same example as above, the savings for a borrower who refinances to the lowest variable rate on the market from Reduce Home Loans at 3.59% would jump up to $258 each month and $77,257 over the life of the loan.

To find the top mortgage deals on the market right now, head to Mozo’s home loans hub to compare home loans side by side and see how much you could save.

Mozo compares more than 550 home loans from banks, non-bank lenders, credit unions and building societies to help you find the best value loan for your needs.

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