National Australia Bank Ltd. slashes fixed rates

The battle for new loans continues to heighten.

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National Australia Bank Ltd. (ASX: NAB) has slashed its fixed-term home loan rates to their lowest level since September 1993, giving the bank the lowest rate for fixed home loans over one, two, three and four years.

The banking giants, namely NAB, Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC), have been battling for home-loan customers, with interest rates remaining at their 50-year low of 2.5%. In order to gain an edge over its competition, NAB has lowered its four-year fixed home-loan package rate by 0.2% to 5.44%, while also lowering its three-year fixed rate by 0.05% to 5.14%.

The slash in rates comes roughly one week after St George Bank, Bank SA and Bank of Melbourne – which are all owned by Westpac – each pushed up their fixed interest rates by 0.14% to 5.24%, which indicates that the Reserve Bank's next official interest rate move could be upwards.

However, NAB's move supports the view of many economists, who still believe that interest rates will not be increased in 2014. Although fixed rates are not directly linked with movements in the official cash rate, in the same way that variable rates are, they certainly give a good indication of where lenders believe interest rates will go in the future.

In fact, some economists have even pegged interest rates to fall as low as 2% this year. NAB's move will almost certainly see the debate over whether to lock-in low mortgages resurface. NAB's personal banking boss, Gavin Slater, said: "NAB has led the industry in making banking fairer and simpler for customers for more than four years, through measures such as the abolition of numerous fees and offering competitive rates."

Foolish takeaway

Each of the big banks' profits have been boosted by the low interest-rate environment and the banks are eager to win as many new loans as possible. NAB's move could see its major competitors follow closely behind.

Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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