Want a competitive home loan? You might have to fix in this environment

author-avatar By on December 11, 2020
Want a competitive home loan? You might have to fix in this environment

Freedom Lend, Illawarra Credit Union, AMP and others managed to cut rates in the past week, but mainly for borrowers willing to fix on packaged loans.

Freedom Lend made quite a few changes, including cuts by up to 50 basis points for its fixed loans

For example, the 'Freedom Fixed' loan paying principal & interest (P&I) fixed for three years is now 2.24% p.a. (2.44% p.a. comparison rate*).

This is for borrowers with 80% LVR, i.e. 20% deposits. A 95% LVR loan is also available.

In contrast, Freedom Lend cut a couple of variable loans only by between 5 and 10 basis points.

Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner occupiers.

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.

Illawarra Credit Union also cut a wide variety of home loans, most notably its fixed 'The Works' packaged loans.

The Works packaged loan fixed for one year paying P&I was cut by 45 basis points down to 2.34% p.a. (3.00% p.a. comparison rate*).

AMP was another to cut rates on packaged loans in the past week.

For example, the 'Professional Package' series was cut by up to 30 basis points for investors.

Paying P&I, the two year fixed package rate is now 2.49% p.a. (3.76% p.a. comparison rate*).

That said, AMP did introduce some Professional Package variable loans for owner-occupiers, aimed at refinancers with the equivalent of 40% deposits (60% LVR).

Where to find competitive variable rates

You could look at the table above to see some of the more competitive variable offers in the market at the moment.

Upwards of 35 lenders have home loans below the 2.00% p.a. advertised rate threshold these days, yet only a handful are for variable home loans.

The big four, for example, introduced sub-2% home loans only for packaged loans, fixed for four years, and generally speaking, lenders laid a massive stinker for borrowers following the Reserve Bank's latest cash rate cut.

In the past week, Reliance Bank and Credit Union SA did manage to either introduce or cut some variable loans, but only by up to 10 basis points.

For example, Reliance Bank cut its 'All in One' variable home loan for owner-occupiers paying P&I, though it's a two-year intro rate offered as a 'discount'.

It was cut by just 5 basis points down to 2.85% p.a. (4.19% p.a. comparison rate*).

Meanwhile, Credit Union SA introduced a couple new variable loans.

One is a variable packaged loan for first home buyers, which features an interest rate of 2.99% p.a. (3.41% p.a. comparison rate*).

As always, check the lenders' websites to learn about the conditions and 'discount offer' periods of each 'special offer' home loan.

Thus far, in the 'rate war', many lenders have been most willing to introduce their most competitive loans in the fixed, packaged loan space.

While fixed home loans can provide repayment certainty, which could be crucial during a recession, they have their downsides as well.

Most notably, rates are already feasibly at their lowest for the next few years, and breaking out of a fixed loan early could cost thousands.

They can also be more restrictive in how many early repayments you can make and so on.

Meanwhile, packaged loans bundle up credit cards and other products you might not need for extra fees, which is often reflected in the comparison rate.


Photo by Sincerely Media on Unsplash

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.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

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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author-avatar
Harrison joined Savings in 2020. He is an experienced journalist, with previous stints at News Corp and financial comparison site Canstar. With a keen interest in personal finance, Harrison is passionate about helping consumers make more informed financial decisions.

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