Tuesday’s RBA announcement saw the cash rate cut by another 25 basis points to a historic low of 0.75%.
Will the banks pass on the full 0.25% reduction to variable rate customers?
It will take a few weeks for the new rates to take effect but if you want to discuss your rates, contact us now (08) 9242 3300 or reply to this email.
CBA and NAB were the first to announce they will not pass on the full amount across the board.
CBA announced that they will pass on the full 0.25% reduction for Interest Only (IO) investment loans. For Principle and Interest (P&I) loans and IO owner-occupied loans they will only pass on a 0.13% reduction starting 22nd October 2019.
NAB will reduce their variable rates by 0.15% for P&I loans and owner-occupied IO loans. For investment IO loans they will pass on a 0.30% reduction taking effect on 11th October 2019.
ANZ and Westpac followed suit and are passing on 0.14% and 0.15% respectively across all their variable rate loans.
Are your loans fixed?
What does this all mean for you?
A fixed rate home loan is a contract guaranteeing that you will repay a fixed amount of interest on a loan for a specified time period.
Can you break a fixed rate loan?
If you want to take advantage of these low variable rates or move to another lender, then your existing lender needs to be compensated for any loss they may incur. Therefore, they may charge you break fees. Breaking a fixed rate home loan can be expensive and not always beneficial, which is why it is important to discuss this with your broker first.
How are break fees determined?
Each lender calculates the break fees slightly differently based on the Bank Bill Swap Rate (BBSR) which is calculated by the Australian Securities Exchange (ASX).
Break fee= Loan amount x remaining fixed term x (difference between BBSR and your fixed rate)
If rates have increased since you fixed your loan, then there is a good chance you won’t be charged break fees because the bank will make more money from you.
If rates have decreased since you fixed your loan, then you could incur break fees.
Let’s say you have a $300,000 loan with ABC Bank. It is fixed at 4% for 3 years with 2 years remaining. Difference between BBSR and fixed rate is 1%.
Break fee= $300,000 x 2 x 1% = $6,000
You then need to work out if the savings you make by being on a variable rate home loan covers the break fee to make it beneficial.
As you can see, getting the best deal to suit your circumstances can be quite complicated. So, we suggest a quick phone call or email to your broker to discuss your options.
So, let’s talk!
Call us today (08) 9242 3300 OR email firstname.lastname@example.org