Borrowers pay $18bil more as RBA cuts not matched by banks

By Terry Ryder, 23rd October 2012

Home loan customers have paid an extra $18 billion in the past five years because the major banks have not matched the interest rate reductions of the Reserve Bank.

Financial comparison website RateCity.com.au says the gap between the official cash rate and the benchmark standard variable rate - the average rate of the major four banks ANZ, Comm Bank, NAB and Westpac - has almost doubled since October 2007.

The benchmark standard variable rate was 182 basis points above the cash rate in October 2007. It has increased to 337 basis points today.

Michelle Hutchison, spokesperson for RateCity, says borrowers need to be prepared for more out-of-cycle rate movements as lenders look to offset funding pressures and maintain profits.

"The new normal for variable rate home loans is that you're not likely to receive the entire cash rate movements and you will probably be hit with small hikes out of cycle over your loan term,” she says.

According to RateCity, borrowers with a typical $300,000 home loan paid an extra $11,687 in interest over the past five years, as a result of major banks not passing on the RBA rate reductions in full.

"You could save a lot more than $11,687 by simply reviewing your home loan every year or two,” Hutchison says. “For instance, by switching a $300,000 home loan once from 6.5% to 6%, you could potentially save over $35,000 over 30 years."

Terry Ryder

Terry is the owner and creator of hotspotting.com.au, which provides information to property investors on how to identify emerging markets before they’re common knowledge.

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