MENU

Small lenders cut mortgage rates

Something you don’t see every day, and potentially a first ever. Three small home lenders have cut their variable mortgage rates, without any prompting from the Reserve Bank of Australia.

According to financial comparison site, RateCity, Holiday Coast Credit Union cut several of its loan products by 20 basis points, BMC Mortgage reduced several loans by 10 basis points, while IMB trimmed one of its loans by five basis points. The rate cuts are more than likely due to rapidly falling wholesale lending rates.

Michelle Hutchison, Spokesperson for RateCity, said it’s the first time it had recorded three lenders cutting variable home loan rates out-of-cycle. “While there have been several rate increases out-of-cycle, we’ve never seen lenders drop variable home loan rates while the cash rate remains stable.”

Mrs Hutchison added, “Lenders have room to move after keeping on average 0.42 percentage points of the Reserve Bank’s 1.75 percentage point cut to the cash rate since November 2011 from variable home loan borrowers. If these three lenders can afford to cut variable rates out-of-cycle, other lenders – including the major banks – have no excuse to sit on their hands.

It’s also no excuse for borrowers to wait for the discount, and should shop around. A 0.2% discount could mean a saving of $456 per year or $13,680 over 30 years, on a $300,000 loan.

According to RateCity, the cheapest variable mortgage rate being offered is at 5.12%. By comparison, Commonwealth Bank’s (ASX: CBA) cheapest rate is 5.7%, followed by ANZ Bank (ASX: ANZ) with 5.74%, Westpac Banking Corporation (ASX: WBC) with a 5.81% variable rate and National Australia Bank (ASX: NAB) with 5.89%.

Borrowers could save more than 0.5%, by switching out of the cheapest rate offered by the big four to the lowest available rate, could see savings of $108 a month or over $39,000 on a $300,000 loan over 30 years.

Foolish takeaway

The big four banks depend on borrowers being too lazy to seek out better rates, even if it could save them $1,000’s each year. Surely the inconvenience and hassle of changing providers would be worth it?

The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.