How to get a better home loan rate by picking up the phone

The Reserve Bank of Australia today slashed cash interest rates for the second time in two months.

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The Reserve Bank of Australia has set a new record by lowering cash interest rates to - the lowest it’s been in the history of the country.

This trumps the record low 1.25 per cent rate set by the RBA just last month. It also marks the first time in seven years that the cash rate has been cut twice in consecutive months.

and experts predicting another 0.25 per cent reduction from the RBA before the end of the year, all eyes are on the banks to see if they’ll pass on the cuts to consumers.

What does this mean?

When the RBA lowers cash interest rates it means that commercial banks have lower operating costs which they can then choose to pass on to their customers...or not.

Last month's 0.25 per cent cash rate cut saw The Commonwealth Bank of Australia and NAB pass on the full 0.25 per cent, as did ING and other smaller banks.

While ANZ dropped their rates by 0.18 per cent and Westpac reduced by 0.20 per cent.

“Prior to the global financial crisis, it was common for the banks to pass on those full cash rate cuts - what we see now is banks have slightly higher operating costs which means they don’t pass on that full amount,” Eliza Owen, Research Analyst at Domain told The Feed.

Experts predict that by holding back on passing on some of the official rate cuts from 2016 has seen the big four banks pocket around $3.6 billion in total additional revenue.

Talking your way into a lower interest rate

While banks have so far kept quiet on whether they will pass on this new round of cuts, Owen says there’s a way mortgage holders can secure a lower interest rate.

“We might not expect a full mortgage reduction but what has become pretty clear from the ACCC and research done around mortgage rates is that ‘discretionary discounts’ are pretty common,” Owen says.

People can get a lower rate potentially just by calling up their bank and seeing if they’re eligible.
Before today’s cuts the average variable home loan rate stood at 4.06 per cent. If the banks pass on the July cut that number is expected to fall to 3.87 per cent with the lowest rate potentially plummeting to 2.84 per cent.

No matter what cut your bank passes on, it’s always worth asking to go lower.

“Even if the bank passes on even a 10 basis points [the equivalent to 0.10 per cent] reduction - it could save you upwards of $100 a year - depending how big your mortgage is,” Owen says.

As banks fight to remain competitive, Owen reminds mortgage holders the sway that they have as customers.

“It’s part of the discussion around bargaining power and the way you get that bargaining power is by doing your research,” she says.

“If you have a mortgage with a particular bank, it might help to see what other banks are offering and calling up and seeing what your bank can do for you.”

It’s always worth checking out, as an individual borrower the banks have to balance their operating costs with retaining customers.

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3 min read
Published 2 July 2019 at 5:12pm
By Velvet Winter