Reduce Home Loans pulls down lowest variable mortgage rate to 1.89%

A non-bank lender is beating the lowest variable rate record with a 1.89 per cent rate, an indicator that the race between mortgage lenders is far from over. 

Reduce Home Loans is offering an interest rate below 2 per cent for the second time, after launching the country’s lowest fixed rate of 1.90 per cent only two weeks ago. 

The 1.89 per cent variable rate is:

• 0.80 per cent lower than the lowest variable rate offered by a big four bank, 
• 1.33 per cent lower than the Reserve Bank of Australia’s (RBA) average existing customer rate of 3.22 per cent, and
• 0.06 per cent lower than the next lowest variable home loan rate.

Reduce’s variable rate loan has a comparison rate of 1.92 per cent, and is available to those with a loan-to-value ratio (LVR) of up to 60 per cent. The maximum loan amount is $850,000.

Borrowers may be eligible for a loyalty discount of 0.10 per cent after staying with the lender for five years.

How much you could save by refinancing

Home owners may save thousands in the first year alone by refinancing to the lowest variable rate, a RateCity analysis found.

By switching to Reduce’s 1.89 per cent home loan, an average mortgage holder could potentially avoid stumping up an extra:

• $3,754 in the first year,
• $8,922 in the first two years,
• $23,728 in the first five years, and
• $82,901 over the life of the loan.

The calculations, which account for switching fees, assume a borrower is:

• on the RBA’s average existing customer rate of 3.22 per cent,
• five years into a 30-year term, and
• paying principal and interest on a $400,000 balance.

How much the average home owner could potentially save by refinancing to this rate (including switching costs and fees)

Source: RateCity. Notes: based on an owner occupier paying P&I with a $400K balance outstanding 5 years into a 30 year loan. Existing customer rate is from the RBA. Based on interest paid and fees. Fees include discharge fee from old lender and upfront fees from new lender but not government switching fees.

Home loan rates keep tumbling

The first time a lender dropped its home loan rate to below 2 per cent was in late June, but currently 10 lenders are offering rates starting with a 1, an indicator of the speed at which mortgage rates are falling. 

Fixed interest rates are seeing bigger drops than variable rates on average, which is generally pushing up demand for fixed rates. 

But that doesn’t mean lenders are forgetting about variable rates.

Variable rates plummeted by 58 basis points to 3.23 per cent and 2.92 per cent for existing mortgage holders and new borrowers respectively in the 12 months to July 2020, the latest RBA figures on housing lending rates showed. 

And more than 40 lenders slashed their variable rates for owner-occupiers in the two months to September, according to RateCity records.

Before today, another non-bank lender Easy Street Financial Services had the lowest variable rate on offer at 1.95 per cent, though that only applied to home loans of more than $750,000.

The great Australian refinancing rush

COVID-19 has seen a significant rise in refinancing, worth tens of billions of dollars. 

More than 113,000 Australians have switched mortgage lenders in the four months to July, reshuffling the providers of a staggering $53.7 billion of home loans, the latest figures from Australian Bureau of Statistics showed.

Low interest rates across the board and ongoing competition between lenders means it may be a good time to look at refinancing. RBA governor Philip Lowe urged mortgage holders in July to shop around and ask for a discount on their interest rate. 

But some of the best mortgage rate deals on the market are being targeted squarely at mortgage holders who have a sizeable level of equity banked up.

Home owners who have held their property for six years or more could be in a better position to reap the benefits of switching to their lender’s competitor, RateCity analysis found. 

Banks, including Westpac, Macquarie Bank and St George, are offering lower interest rates to people with an LVR of 70 per cent, in a bid to add reliable borrowers on to their home loan books.

How does this new 1.89% variable rate compare?

Lowest ongoing variable rates on RateCity.com.au

The 10 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 at time of publishing.

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 at time of publishing.

Compare home loans in Australia