The Reserve Bank of Australia (RBA) has decided to lower the cash rate by 25 basis points to 0.50%, and the biggest impetus for this decision was the global coronavirus outbreak.

In the past, while small lenders and neo lenders were quick to pass on the rate cut, even major banks have announced that they’d pass on the rate cut in full.

Big four have passed on the full rate cut

This is the first time major banks have passed on the rate cut in full since February 2015.

CBA, ANZ, Westpac and NAB have announced that they will pass on the full rate cut of 0.25% or 25 basis points on their variable home loan rates.

• ANZ: 0.25% (25 basis points) effective from 13 March 2020
• CBA: 0.25% (25 basis points) effective from 24 March 2020
• NAB: 0.25% (25 basis points) effective from 13 March 2020
• Westpac: 0.25% (25 basis points) effective from 17 March 2020

The outbreak of the coronavirus is impacting Australia’s economy and the major lenders are hopeful that the rate cut would provide additional support to small businesses and those seeking for a low-rate home loan.

Unfortunately, while the major banks passing on the rate cut in full is a welcome change, most of them have delayed their time to pass the rate cut by two weeks.

Low fixed rates on home loans

On the other hand, online lenders have been much quicker to implement the rate cut and are offering interest rates well below 3%.

Furthermore, non-major lenders have also announced significant changes to their home loan interest rates, and are offering some of the lowest fixed rates currently available in the market.

Some fixed-rate home loan interest rates have gone as low as 2.49% – which is the lowest three-year fixed rate in Australian history!

Should I fix my home loan after the rate cut?

Since interest rates are at a record low right now, you might be thinking about fixing your home loan to take advantage of the low home loan rates.

The two major benefits you get by fixing your home loan are:

• You know for certain how much your home loan repayments will be. This is great if you don’t have the flexibility of increasing your funds should the interest rate rise again.
• You will keep paying the same interest rate, even if the interest rates rise again in the future. If you’re speculating that the interest rate will rise again, then you are better off getting a fixed home loan.

Since it is difficult to know for certain if the RBA will cut rates even lower in the future, you might benefit from getting a low fixed rate now.

However, the biggest disadvantage you’ll suffer is that your interest rate will remain the same even when variable rates have dropped.

Remember, fixed rate loans only last up to 5 years, at the end of the fixed rate period your interest rate generally reverts to the lenders’standard variable rate.

Will the banks pass on the next rate cut?

It’s more a question of if the banks can afford to pass it on.

Banks are currently experiencing a lot of pressure on their margins and so we believe it’s unlikely that they will pass on the full amount of future rate cuts.

Banks need to cut the rate for savings accounts when they cut the rate for mortgages. However, the lower rates get for savings accounts the more likely people are to move their money to other investments such as the share market.

For this reason as rates get closer to 0% the harder it is for banks to pass on rate cuts.

To fix or not to fix?

Our mortgage brokers are here to help you if you are confused about whether to fix your home loan or not.

We will carefully assess your situation and provide you with a home loan that best suits your needs. Call us at 1300 889 743 or fill in our free assessment form.