The Reserve Bank of Australia (RBA) slashed the cash rate once again by 0.25% – taking the already low cash rate to its new historic low of 1.00%.

Relatively, fewer banks are passing on the full rate cut compared to RBA’s rate cut in June.

Who passed on the full rate cut among the big four?

The big four are reducing their variable rate home loan rates for owner-occupiers paying principal and interest as follows:

• ANZ: 0.25% (25 basis points) effective from 12 July.
• CBA: 0.19% (19 basis points) effective from 23 July.
• NAB: 0.19% (19 basis points) effective from 12 July.
• Westpac: 0.20% (20 basis points) effective from 16 July.

This time around, ANZ became the only major bank to pass on the full rate cut to both its new and existing variable rate customers. While previously, ANZ, along with Westpac, was widely criticised for passing on only a partial rate cut in June.

But now, both CBA and NAB who passed on the previous rate cut in full decided to pass only a partial rate cut.

The big four are set to rake in $354 million a year in additional interest by withholding some of the rate cut from their customers.

By also delaying the date their cuts take effect, the banks are looking at pocketing an extra $109.1 million in additional interest.

Impact of the combined rate cut on annual savings and missed savings

Let’s look at the impact of the combined rate cut on home loan borrower’s savings and missed savings due to the banks not passing on the full rate cut.

These calculations are based on making the reduced repayment (principal and interest monthly repayment) on a $400,000 home loan with a 30-year term on a variable interest rate of 4.00%.

What rate cut each lender passed on?

• AMP: 0.20% p.a. (Total rate cut passed – 0.45%) effective date – 22 July 2019
• Auswide Bank: 0.25% (total rate cut passed – 0.50%) effective date – 4 July
• Bank Australia: 0.16% p.a. (Total rate cut passed – 0.41%) effective date – 22 July
• Bank of Melbourne: 0.20% p.a. (Total rate cut passed – 0.40%) effective date -16 July
• Bank of Queensland: 0.15% (Total rate cut passed – 0.40%) effective date – 23 July
• Bank SA: 0.20% (Total rate cut passed – 0.40%) effective date – 16 July
• Bankwest: 0.19% (Total rate cut passed – 0.44%) effective date – 23 July
• Firstmac: 0.25% effective date not announced
• Heritage: 0.15% (Total rate cut passed – 0.35%) effective date – 18 July
• Homestar Finance: 0.25% (total rate cut passed – 0.50%) effective immediately
• ING: 0.22% (Total rate cut passed – 0.47%) effective date – 18 July
• Liberty: 0.19% (Total rate cut passed – 0.39%) effective date – 23 July
• La Trobe: 0.30% (Total rate cut passed – 0.40%)
• Macquarie: 0.20% (Total rate cut passed – 0.45%)effective date – 18 July
• Me Bank: 0.15% (Total rate cut passed – 0.40%) effective date – 23 July
• Newcastle Permanent: 0.25% (total rate cut passed – 0.50%) effective date – 29 July
• Qudos: 0.15% (Total rate cut passed – 0.40%) effective date – 16 July
• Resimac: 0.25% (previous rate cut not disclosed) effective date – 24 July
• RAMS: 0.20% (Total rate cut passed – 0.40%) effective date – 16 July
• State Custodians: 0.25% (previous rate not passed) effective date – 24 July
• St George: 0.20% (Total rate cut passed – 0.40%) effective date – 16 July
• Suncorp Bank: 0.19% (Total rate cut passed – 0.39%) effective date – 19 July

If you’d like your home loan interest rate reviewed by one of our specialist mortgage brokers, please give us a call on 1300 889 743 or fill in our online assessment form.

Should you reduce your mortgage repayments?

When interest rates drop for a principal and interest loan, most lenders don’t actually lower your repayments.

There’s less interest charged, so you end up paying off the loan faster and staving years off of your mortgage.

For example, a $500,000 home loan over 30 years may have its rate drop from 3.75% to 3.50%.

If you continue to make the old repayments, then you’ll save 1.57 years and $43,500 in interest over the life of the loan.

Homeowners should take this opportunity to increase the size of their repayments if possible, for the same home loan, if they paid $300 per month more than their old repayments then they’d save 6.67 years and $101,200 in interest.

Now is also an excellent opportunity to consolidate any expensive debts such as credit cards into your home loan and take advantage of the lower home loan rate.

The 2 year rule

If you haven’t refinanced or renegotiated your home loan in the last two years, then you’re almost certainly paying too much on your mortgage.

The difference in interest rates being charged by the big banks and non-bank lenders are already at 0.75% p.a. on average.

We regularly update and publish the best interest rates on offer from our panel of almost 40 lenders to keep you updated.

Are you in a position to refinance?

As a general rule:

• You should only refinance once your home loan balance is less than 80% of the property value so as to be able to avoid Lenders Mortgage Insurance (LMI) fees.
• You’ve been making your mortgage repayments on time for the past 6 months.
• You need to have stable employment.

Why are fewer banks passing on the rate cut in full?

Amidst talks of further rate cuts, banks are unlikely to pass on the full cash rate cut going forward because the main way banks finance their loans is through deposits.

And if the cash rate keeps dropping, so will the interest rate on savings and term deposits.

Lower rates on deposits mean people with cash in the bank are likely to move their funds into the share market to get better returns.

When roughly 60% of the bank’s funding comes from savings and term deposits, they can’t afford to cut deposit rates by the same amount as lending rates without it affecting their bottom line.

That means if they’re to pass on the full rate cut to its home loan borrowers, it will have to cut it’s savings rate as well to keep their margin of profit.

Banks want to make sure they have enough deposits to fund their lending while also protecting their margins.

So, it’s less likely they will pass on a full rate cut anytime in the future.

Can you negotiate with your bank?

If you’re on a variable rate home loan, one of our expert mortgage brokers can negotiate with your lender on your behalf to get you a better deal.

If you’re an existing Home Loan Experts customer, our post-settlement team will do this automatically on the anniversary of the settlement of your loan.

Contact our mortgage brokers to get a free assessment of your home loan today

You can give us a call on 1300 889 743 or fill in our online assessment form.