Hannah Tattersall
12th October 2022
Reserve Bank governor Philip Lowe slashed the official cash rate by 25 basis points this week to just 0.75%. This is an historic low: the first time the cash rate has fallen below 1%.
Well, you’re probably wondering what this means for you and your home loan. This will depend on what sort of rate you’re on (fixed or variable) and which bank your loan is with.
So far only a handful of banks have said they will pass on the current rate drop: CBA,
ANZ, ING and St George. Others may follow in the coming weeks.
What you should do if you’re on a variable rate
If you’re on a variable rate, your bank may cut rates in line with the official cash rate, giving you some reprieve on your home loan. You may find you get a nice drop in your weekly or monthly repayments.
Lenders are not obliged to pass on rate cuts and many don’t. This is a good time to shop around and check your rate against others in the market. Just because your bank hasn’t passed on the rate cut doesn’t mean other banks won’t.
UNO’s loanScore technology analyses the market daily to check customers’ loans against thousands of home loan products in the market. Customers are alerted when their potential savings hit their chosen threshold and, with their approval, UNO can renegotiate with the customer’s current lender or switch them to a better deal.
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What you should do if you’re on a fixed rate
Being on a fixed rate means just what it sounds like – your rate is locked in for a certain amount of time. You may have chosen to lock in for 1 year, 3 years or 5 years – either way, if best home loan rates go up or down, your rate ain’t budging.
While you might be resenting the fact that you’re now on a higher interest rate than some others advertised at the moment, there are a few things you can do:
Find out the break costs
Sometimes the break costs attached to a home loan are worth paying because the interest you’ll save by switching to a better rate covers the cost of breaking it. Ask your lender what the break costs would be and get UNO to help you do the maths on whether it’s worth switching now or waiting ‘til the end of your loan term.
Get ready to refinance at the end of your fixed term
Your lender might send you a fixed rate review letter towards the end of your loan. Others automatically put you on a variable rate when your time is up. It’s a good time to review your rate and see what else is around. It’s always worth asking your lender for a better rate; other times you’ll get a more competitive deal by switching to another lender.
Why refinancing is always a good idea
Many Australians don’t refinance out of loyalty to their current lender, laziness, or fear of having to call their bank. UNO’s Active Home Loan Management service is founded on the principle of acting in the best interests of home loan customers. We’ll proactively manage your home loan on your behalf, so you don’t have to worry about seeming disloyal, not being bothered or the fear of calling your bank.
Here’s an example of what might happen if you choose to refinance. UNO had a customer who was on a 7.8% interest rate they’d been on for about 10 years. With rates on the market now starting with a 2 and 3, a 7.8% rate is not very competitive. UNO was able to switch the customer to a better deal. They refinanced their loan to a 3.3% interest rate and saved about $25,000 a year. That’s $750,000 in savings over a 30-year loan term.
Another customer was paying $32,000 a year in interest and was able to more than half that amount down to $13,200 a year by switching to a better rate.
With UNO loanScore, homeowners can be confident they are getting real value and saving money as often as those savings become accessible.
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