Home Loan War Heats UpHomebuyers can now get loans at interest rates below 2%, as competition for mortgage business intensifies. A smaller lender is offering a variable-rate home loan of 1.99% (as an introductory rate) and more lenders are expected to do likewise.

In a market awash with special deals, another lender is offering $4,000 cashbacks for health, education and emergency services workers and smaller cashbacks for others.

Sally Tindall, director of research at RateCity, says lenders are targeting people who want to refinance. The pandemic has slowed the growth in new mortgages but the number of those switching to other lenders has surged.

RBA figures show the average rate on big-four banks’ variable interest rate loans to new owner-occupiers is 2.93%. The average rate for all loans – including existing customers – is 3.26%. Many of the best deals are available only to new customers who have big deposits.

The 1.99% interest rate offered by Loans.com.au is the first variable interest rate mortgage to dip below 2%. The low rate is only available for the first year, after which it reverts to 2.57%. A two-year discounted variable rate of 2.09% is also available which reverts to 2.79% later. The discounted rates are restricted to new customers with a 20% deposit.

“While mortgage holders are typically better off opting for a low ongoing rate in the long term, if they regularly refinance they could end up well ahead with these sign-on incentives,” Tindall says.

The move comes after the Tasmanian customer-owned Bank of Us introduced fixed rates of 1.99%. Canstar’s Steve Mickenbecker says: “Just last month we saw fixed rates crack the 2% barrier, with variable rates now following suit, albeit with an introductory rate that moves higher after 12 months.”