Mortgage rates see another cut – is it all too good to be true?

25/05/2016   Loreen Dyer, Loans Coordinator

Following the 3 May 2016 Federal Budget, the Reserve Bank of Australia (RBA) has dropped the interest rate to a new historic low. 

Within minutes of the RBA announcing its cash rate cut, the major banks revealed they would pass on the reduction to their customers.  Most in full and some at a lesser discount.  The new rates will take effect from mid to end May 2016. 

What this means for you is that, as a result of the reduction, you can save approximately $47 a month on a $300,000 mortgage. On a $550,000 mortgage the saving would be approximately $114 per month.  However, if home owners were to ignore the rate cut and retain their repayments, the average homeowner would over the term of their loan, save approximately $10- $11K in interest and pay their mortgage off a year or so sooner.

But could one expect these rates to remain stagnant for a while - if not a further reduction – is a different question!

Too good to be true - fixed rates have dropped to an all-time low

One of the major banks said alongside the cut in variable mortgage rates, it would cut two-year fixed interest rates for owner-occupiers to 3.75 per cent and rates on four-month term deposits would increase from 2 per cent to 3 per cent.  The other major banks are following closely behind at 3.99 per cent and 4.19 per cent packaged for owner occupier properties and 4.44 per cent for investment.  Some other financers have dropped their two year fixed interest rate to as low as 3.98%. 

It can only be a good sign for borrowers who can now lock in a low rate over the coming years to facilitate better budget controls on household expenditure, with predictable costs on their home loans.

Non-Resident Borrowers / Temporary Visa Holders

Last week CBA announced its ban on lending to non-resident property investors and temporary visa holders.  Following in its footsteps are Westpac Group, including St George Bank, Bank of Melbourne and BankSA.    

The Westpac Group have also reduced the loan-to-value-ratio for applications where foreign income has been included, from 80 per cent to a maximum 70 per cent of the bank valuation of the property from April 26 2016 (see FIRB website).

In Summary

While the funding markets remain volatile, the decision to lower interest rates is pitched at ensuring banks maintain the right balance between growth, risks and margins over the longer term, whilst also considering the needs of their borrowers.

If you would like to find out more about current mortgage lending rates and whether you’re getting the best rate from your lender, please give us a call on 1300 726 082 and ask to speak with a mortgages and finance adviser today.

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