Reduce Home Loans brings record low mortgage interest rate down to 1.90%

Non-bank lender Reduce Home Loans has today rolled out an introductory mortgage interest rate of 1.90 per cent, smashing the lowest fixed rate record in Australia.

Reduce is the ninth mortgage lender to drop owner-occupier interest rates to below 2 per cent, as competition between home loan lenders continue to rage on.

While the new home loan is the lowest fixed rate for an owner-occupier in Australia, the loan reverts to a 2.39 per cent variable rate after the first year. Borrowers may also be eligible for a loyalty discount of 0.09 per cent after five years.

The loan has a comparison rate of 2.39 per cent, and is available to those with a loan-to-value ratio (LVR) of up to 80 per cent. The maximum loan amount is $850,000.

How much could you save by refinancing to a 1.90 per cent rate?

A RateCity analysis found that by switching to the new lowest fixed rate, an average mortgage holder could potentially pocket back thousands in the first year, with fees factored in.

If an owner-occupier on the Reserve Bank of Australia’s average existing owner-occupier rate of 3.25 per cent with a $400,000 balance and 25 years remaining on the loan term switched to Reduce’s 1.90 per cent home loan, they could potentially:

• save $4,306 in the first year,
• save $7,676 in the first two years,
• save $17,363 in the first five years, and
• save $57,721 over the life of the loan.

Sally Tindall, RateCity’s research director, said the low interest rate environment meant that home loan rate records are being reset regularly. But she warned borrowers to do their research when applying for honeymoon rates.

“This is a record-breaking low rate, designed to attract people’s attention in an extremely competitive market. But as with any introductory deal, do the maths to make sure you’re still ahead after a few years,” she said.

“With the big four banks offering fixed rates in the low twos, the online lenders have got little choice but to keep cutting rates.”

Owner-occupier mortgage interest rates on the decline

While 81 mortgage lenders have an owner-occupier rate of below 2.5 per cent on the RateCity database, the list of home loan rates starting with a one is steadily growing.

Within the past two months, nine mortgage lenders have introduced sub-2 per cent interest rates.

Ms Tindall said while home loans under 2 per cent are becoming more common, the lenders offering these deals are becoming “increasingly particular about who qualifies for them”.

“Most of the sub 2 per cent rates have their fair share of terms and conditions so read them carefully to make sure you qualify,” she said.

“Broadly speaking, owner-occupiers with a steady job and a decent amount of equity in their loan are sitting in the driver’s seat when it comes to rate.”

The first lender to bring a home loan rate below 2 per cent was Bank of Us in late June, though that offer was only open to Tasmanian residents. 

Most recently, People’s Choice Credit Union was the latest to join the sub-2 per cent club, when it reduced its one-year fixed rate to 1.99 per cent (comparison rate 3.91 per cent) less than two weeks ago. 

Meanwhile, ME Bank cut its owner-occupier variable rate by up to 0.59 per cent to as low as 2.58 per cent (comparison rate 2.60 per cent) for new and refinancing customers last Friday. It is the lowest advertised variable rate ME has offered.

Lenders offering rates under 2%

Source: RateCity.com.au.
Note: Hume Bank rate is only available to new loans for renovation or construction of new properties within 150 km of Albury Post Office. Loans.com.au product is an introductory variable rate – 1.99% for one year after which it reverts to 2.57%. Data accurate as of August 31, 2020.

Big four banks – lowest rates

Source: RateCity.com.au. Note: Rates are for owner occupiers paying principal and interest. *Westpac’s rates are for customers with a loan-to-value ratio of less than 70 per cent. Data accurate as of August 31, 2020.

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