Borrowers urged to switch if rate cut withheld by banks

By Terry Ryder, 1st November 2011

Financial comparison website RateCity has urged customers to immediately switch banks if their lender does not pass on the RAB rate cut in full. I wholeheartedly agree.

It’s a sentiment widely expressed by commentators following the RBA’s Melbourne Cup Day decision to cut the official rate from 4.75% to 4.5%.

It seems everyone is delighted with the cut but cautious because of the uncertainty over the reaction of lenders.

Here’s some of the reaction to the official interest rate cut:-

Damian Smith, CEO, financial comparison site RateCity: Borrowers with a $300,000 variable rate mortgage could save around $47 a month - if this 25 basis point drop is passed on by lenders.

With the property market still very slow, lenders really have no excuse not to pass on the rate cut in full and quickly – it’s the best way to get first-home buyers and investors back into the market.

With the ban on excessive exit fees, if your lender doesn’t pass the interest rate reduction on in full, you should be shopping around for a new lender immediately.

Most borrowers will be better off by not reducing their monthly repayments if possible. For instance, if you are paying the minimum on a $288,300 home loan right now – paying around $2058 per month – and keep your repayments at that level rather than spending the extra $46 per month, you'll save $21,000 in interest over the life of your loan.

Kristy Sheppard, spokesperson, Mortgage Choice: Today’s RBA decision to drop the cash rate for the first time in two and a half years will lower the anxiety levels and minimum debt repayments of many households in the lead up to Christmas - as long as home loan lenders pass it on.



The 0.25 percentage point fall equates to $50 less in minimum monthly repayments on a 30-year $300,000 mortgage at 7%. 



It also means at least one in three Australian mortgage holders will become more likely to look into refinancing, according to the recent Mortgage Choice 2011 Saving & Spending Insights Survey.



Almost half of Gen Y’s property owners will probably get their loan shopping basket out now, with 43% of the survey respondents saying they’d be more likely to refinance if rates drop.

Borrowers should take the reins of their home loan and scout around for rate discounts, switching incentives and other offers.

It’s amazing what a difference a drop in a home loan’s rate and fees can make to its overall cost. You might be able to save tens of thousands of dollars in interest and cut years off your loan term.

Greg Moulton, president, Real Estate Institute of South Australia: Home-buyers will feel that they have won more than the office Melbourne Cup sweep today. A cut in interest rates was the news home-buyers were looking for and this will be a kick to the local real estate market.

There is no doubt we’ve been experiencing a flat market in recent times, so this drop in the official cash rate will be an important step in injecting momentum back into property.”

It’s now up to the banks to pass on the savings to consumers so we’ll all be watching to see which banks pass on the rate change.

Bit by bit, we are starting to see indicators that the property market may be strengthening again and today’s decision is another driver which will see people return back to the stable investment of bricks and mortar.

Pamela Bennett, acting president, Real Estate Institute of Australia: This is welcome news for home buyers – we hope the banks play their part and pass on the rate cuts in full.

REIA’s June quarter data shows home owners were contributing 34.6% of their income to monthly loan repayments – the rate cut will translate into an improvement in affordability by decreasing this figure to 33.8%.

If the rate cut is passed on, the average Australian mortgage holder will reduce their monthly repayments from $2237 to $2187 - a saving of $50 per month.

ENDS

Related Report

The National Top 10 Best Buys 2012

Each of the reports in the hotspotting.com.au stable of publications contains a Top 10 list of locations tipped to out-perform the general market. These locations are considered to have growth ...

Read more...