The big four banks respond to RBA interest rate cuts after news of a slowing economy so what does this mean for you?
The Reserve Bank of Australia (RBA) lowered the official cash rate from 1.5% to the historic low of 1.00% through two consecutive rate cuts in the months of June and July 2019. As the first move made by the RBA since August 2016, this 0.50 percentage point drop is a telling sign of current economic conditions. Changes to the cash rate will influence everyone with a mortgage so it’s important to review your rate and check your refinancing options.
ANZ is the only major bank to have passed on the full 0.25% rate cut following the July cut announcement. CBA have passed on the full 0.25% cut to interest only loans and 0.19% to principal and interest loans. NAB have announced 0.19% cut to all of its home loan products. Westpac have passed on 0.20% for owner occupied loans and 0.30% for investment interest only products.
Most Australian lenders also announced cuts to variable rate loans following the first June RBA announcement. Commonwealth and NAB all passed on the rate cut in full at 0.25 per cent, while Westpac reduced its rates by 0.20 per cent and ANZ by 0.18 per cent. While some second tier lenders such as Bankwest and ING passed on the rate cut in full, St George, Suncorp, Heritage and many others decided to partially reduce rates.
Even though most lenders had passed on some or all of the interest rate cuts – there were slight delays. The big four banks saved a combined total of $108.8 million by making the first June cut delays. Whilst these interest rate cuts are good news for the housing market, they are also an admission that current conditions are untenable.
Is it time to refinance?
With sharp differences between lenders when it comes to rates, rebates and product specifications – refinancing your mortgage can be a great way to save money and make sure you’ve got the best deal. Refinancing is a simple yet effective procedure that involves replacing your current debt obligation with a new one.
Moving to a new lender often results in a better interest rate, loan structure and features and possibly a consolidation of debt. Refinancing promotes industry competition and is an important tool in modern capitalist societies like Australia. The refinancing process doesn’t have to be difficult, as long as you have the right information and documents at your disposal.
Firstly, it’s important to engage a broker who can walk you through the process and define your goals, as this will influence your decision-making process. Secondly, you need to gather all relevant documents and your broker will be able to compare loans based on current market information. Finally, your broker will calculate switch costs and offset them against refinancing rebates and potential savings. While it may cost money to switch your mortgage, many banks offer refinance rebates which provide you with a cashback upon settlement that may not only cover the switching costs but offer extra cash in pocket. With a lower interest rate, you can also potentially save much more than the costs of refinancing in the long run. The standard refinancing process takes 2-4 weeks and requires all relevant identity and finance documentation.