5 min read | 30 Sep 2019
Update, 1 October 2019: The RBA announced a 0.25% drop to the cash rate today. We’ve passed on the full RBA drop for both new AND existing customers. Effective immediately. See who’s passed it and who hasn’t.
In great news for home loan holders, our nation’s record low interest rates look like they’re here to stay, and Reserve Bank governor Phillip Rowe has indicated that another cut, or even two, are on the cards very soon – as early as tomorrow, 1 October.
How low can interest rates go? No one knows for sure, but even a 0.25% drop on a typical loan amount of $450,000 could save you more than $60 a month on monthly mortgage repayments and over $22,000 over the life of the loan1.
That is, of course, assuming your lender passes on any upcoming interest rate savings in full. But did you know that in the past three years the big four banks have made nearly $4 billion off their customers by often not passing the RBA rate cut in full or delaying the cut.
$4 billion! That’s a bit bloody much, isn’t it? And, now that you know, are you going to stand for it?
Here’s your four-point plan to break free from the banks.
First, check out the current interest rate on your home loan – and while you’re there, find out if your lender passed on June and July rate cuts in full. Then, have a look at some of the other offers out there to get a sense of where your rate sits.
Remember, a lower interest rate doesn’t always mean a cheaper loan, as fees can influence the total cost. You can see these factored into the comparison rate. Check the fine print, too, especially if the lower interest rate is an “intro” or “discounted” rate as these tend to revert to a higher variable rate after the intro period.
If you’re on a fixed rate home loan, check your lender’s fine print. Break costs may apply when you move. However, all’s not lost, as the money you could save on a new low rate could cancel out any losses. Use a savings calculator to check how much you could save.
If it works out better to wait until your fixed term ends, set a reminder 3 months before the term ends so you can start looking around. Don’t wait until the last minute as fixed rates typically revert to a higher variable rate afterwards.
Head to our mortgage savings calculator to work out exactly how much you might save by refinancing.
Reputation counts for a lot in the lending game, so make sure your credit score is fighting fit before applying to refinance with a new lender.
When lenders make a credit decision, they include a review of your credit history and all lenders have cut-offs in relation to your credit score around what they will accept. These cut-offs vary from lender to lender.
You can check your credit score for free from one of the below consumer credit reporting companies online. Your credit score may vary from one website to another as each of these companies use different consumer credit reporting agencies as the basis for their credit scoring data.
Alternatively, you can request a copy of your credit report from the credit reporting agencies directly. They will provide a free credit report so that you can check the accuracy of the information but they can’t talk to individual lenders’ credit criteria.
If yours doesn’t fill you with joy, don’t panic. There are steps you can take to improve it before you apply to refinance. Which brings us nicely to the next point…
Improving your credit score takes time and involves paying your bills on time and doing your research when applying for credit cards. But you can boost your ‘serviceability’ – which is finance speak for measuring what you can afford to repay – pretty quickly.
Consolidate and pay-off your credit cards, store cards and personal loans.
Make sure to completely close those cards. Even if you have a zero balance, the availability of credit reduces your borrowing capacity.
Aim to get your overall debt-to-income (DTI) ratio below 30%. That’s the level many lenders will be looking for. Your DTI is simply the percentage of your income that you’re already paying to debt as this affects your capacity to pay your mortgage.
To refinance your loan, you’ll need to show copies of your payslips, home loan statement and living expenses, as well as ID and any other income sources. So last, but definitely not least, get your paperwork in order.
You aren’t locked into your loan, so don’t let your lender take you for a rate ride, or put up with them keeping future cuts to themselves. It’s time to take a stand. The RBA announces their interest rate decisions on the first Tuesday of each month at 2:30pm. Keep an eye out tomorrow afternoon and if the RBA announces a rate cut, see who moves and who doesn’t.
Athena passed on the last two RBA rate cuts in June and July immediately to all of our customers, new and existing. Plus with our Automatic Rate Match, existing customers will always get the same rate as our new customers on a like-for-like loan.
So what are you waiting for? There’s no time to lose. If you’re ready to go low, apply online or call one of our local Loan Experts at 13 35 35 to refinance your home loan and get (your rate) down with us.