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?

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