Cash rate held but low rates are still up for grabs

The Reserve Bank of Australia (RBA) has today held the cash rate at a record low of 0.25 per cent for the fifth month in a row. But there are still record-low home loan rates up for grabs for borrowers willing to make the switch.

The RBA has held the cash rate at 0.25 per cent since it made an emergency cut mid-March in response to the economic impacts of the COVID-19 pandemic. Meanwhile, RateCity research has found that 39 home loan lenders have cut interest rates since the last RBA meeting on the 7^th July, including Macquarie Bank, HSBC and Bendigo.

A 2020 RateCity survey found that 43 per cent of home loan borrowers were looking to refinance. This is a sharp increase from 19 per cent of borrowers from the 2018 RateCity survey.

Borrowers who aren’t considering refinancing may be missing out on some of the perks switching home loans can bring, including reduced interest rates, increased loan flexibility and access to equity. Just keep in mind that there can be some switching costs, but typically the savings that come from refinancing may even it out.

RateCity research shows that an owner-occupier paying the average variable principal and interest rate of 3.42 per cent (as at 31 July), with 25 years left on a $350,000 home loan, could be $181 better off each month if they switched home loans and shaved just 1 per cent off of their interest rate. This would mean a savings of $2,172 a year just by refinancing.

A one per cent cut may seem generous, but when you consider that the current lowest rates on the market are hovering around 2 per cent, and that lenders typically reserve some of their most competitive rates for new customers, it’s not outside the realm of possibility.

Can we expect a cut in the future?

While the RBA previously held the cash rate at 1.50 per cent for over two years, the ramifications of the COVID-19 virus on Australia means that a cut may come sooner than expected.

The RBA most commonly moves the cash rate in increments of 25 basis points. However, Governor Philip Lowe hinted that a smaller cash rate change may be possible.

In a speech to the Anika Foundation last month, Governor Lowe said: “Using international experience as a guide, it would have been possible to configure the existing elements of the RBA package differently.”

“For example, the various interest rates currently at 25 basis points could have been set lower, at say 10 basis points,” he said.

If you’re considering refinancing now, or even if you want to wait for a potential further rate cut, it’s not unlikely that banks will continue cutting home loan rates out of cycle

Here are some of the lowest home loan rates on the RateCity database:

Compare home loans in Australia