Could fixed home loans be about to start with a 1?

By ING Group on Flickr.

Fixed rate mortgages got a lot of love in the past week, with ING, the big four banks, and others all cutting down to the low 2s.

There was a flurry of rate movements in what was a busy week for the banks, with many announcing they will offer mortgage deferrals for up to six months for those doing it tough thanks to coronavirus.

Oh, and the Reserve Bank (RBA) also made an unprecedented decision to cut its cash rate TWICE in one month.

Variable rate cuts are normally at the forefront of any RBA cash rate cut, but this time around there was more focus on fixed rates, with very few banks making any changes to variable home loans. 

Below is a summary of the banks who have cut fixed rate home loans this past week. 

To see how fixed loans compare, below are a handful of owner-occupier P&I fixed loans with some of the lowest interest rates in the market.

ING fixed rate cuts

ING made cuts to quite a few home loans. Its lowest advertised fixed rate to get a cut was:

• The Orange Advantage Residential Fixed 2 Years 150k+: 50 basis point cut to 2.09% p.a. (3.77% p.a. comparison rate*)

Cuts were seen to most of ING's packaged and non-packaged fixed loans, from one through to five years.

NAB fixed rate cuts 

National Australia Bank (NAB) made a gamut of cuts, mostly to its fixed packaged home loans. The lowest advertised rate to see a cut was:

• The Choice Package First Home Buyer Special 2 Years 150k: 60 basis point cut to 2.19% p.a. (4.02% p.a. comparison rate*)

Note that this is a 'special' offer, and can be withdrawn at any time - NAB's regular rate for this loan is 2.29% p.a. (4.04% p.a. comparison rate*).

Westpac fixed rate cuts 

Westpac made a significant cut of 100 basis points (1%), to its Fixed Options P&I 1 Year 70% home loan, down to 2.39% p.a (4.24% p.a. comparison rate*)

If you don't have a 30% deposit, its Fixed Options 1 Year 95% loan saw the same cut, but down to 2.49% p.a. (4.34% p.a. comparison rate*).

ANZ fixed rate cuts 

ANZ shaved 49 basis points off its Breakfree Residential Fixed 2 Year 150k+ home loan, down to 2.19% p.a. (4.00% p.a. comparison rate*).

If you don't want a packaged home loan, ANZ cut its Residential Fixed 2 Year product by 49 basis points down to 2.34% p.a. (4.08% p.a. comparison rate*). 

Commonwealth Bank fixed rate cuts 

Commbank made a splash last week after it cut fixed rates by up to 70 basis points, with 1, 2 and 3 year fixed terms for owner-occupiers paying principal and interest coming down to 2.29% p.a. (comparison rate yet to be finalised).

As it stands now, the two-year fixed term, for example is at 2.99% p.a. (4.12% p.a. comparison rate*).

Other fixed rate cuts

Other noteworthy banks and lenders to cut rates on their fixed home loan products recently include ME Bank, People's Choice Credit Union, and Bankwest, just to name a few. 

ME Bank fixed rate cuts 

The lowest advertised rate from ME Bank that experienced a cut was the Member Package Flexible Fixed for 3 Years for owner occupiers, with an 89 basis point cut to 2.29% p.a. (3.15% p.a. comparison rate*)

People's Choice fixed rate cuts 

The lowest People's Choice fixed rate to experience a haircut was the Home Loan Package Residential Fixed P&I 2 Year 100k+ loan.

That product saw a 70 basis point cut to 2.19% p.a. (3.80% p.a. comparison rate*). 

Bankwest fixed rate cuts 

The lowest Bankwest fixed loan to see a cut was the Fixed Rate Owner Occupied P&I 3 Year loan.

It saw a 37 basis point cut to 2.53% p.a. (4.24% p.a comparison rate*).

What's the deal with high comparison rates?

While many lenders have cut their advertised rates down to the low 2.00% p.a. range nudging ever closer to the elusive 1, the comparison rates are still often in the high-3s, or even 4s.

This is because the advertised rate doesn't take into account all the extra fees that can be tacked onto a home loan. Certain fees could include:

• A yearly fee  
• Monthly account fee
• Establishment fee
• Valuation fees
• Packaging fees e.g. if it comes with an offset account or credit card

Another major factor is that the comparison rate assumes borrowers will stay on the revert rate if they don't refinance, which is what the interest rate switches to after its fixed term, which can be significantly higher than the advertised rate. 

Comparison rates are calculated on a minimum loan of $150,000 over 25 years.

So even with a low advertised rate, the extra fees could mean you're paying an effective interest rate of 3.00% or more every year.

By law, every lender has to display their advertised rates along with the comparison rate, so you know what to expect.

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Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

• The big four banks are: ANZ, CBA, NAB and Westpac
• The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
• The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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