CUA joins lenders cutting fixed rates as borrowers continue to save

Australia’s biggest home lender has cut its fixed interest rates again as existing mortgage holders continue to wait in hope of some relief before the end of the year. 

Following yesterday’s decision by the RBA to leave the cash rate on hold at 4.75%, the Commonwealth Bank has cut its fixed rate mortgage for the second time in the space of a few weeks. 

From today, the bank’s one-year fixed rate will drop from 6.59% to 6.48% while its three-year fixed rate loan will fall from 6.59% to 6.43% for borrowings over $150,000. 

Other lenders to have cut fixed rate mortgages in the last week include:

  • St George Bank, which has cut its two year fixed rate mortgage by 15 bps (to 6.59%) and three year fixed by 5 bps (to 6.69%)
  • Newcastle Permanent Building Society, which has cut its four and five year fixed rates by 10 bps to 6.79% and 6.84% respectively
  • Credit Union Australia, which has cut its one year fixed by 26 bps (to 6.79%); two yCear fixed by 25 bps (to 6.85%); three year fixed by 40 bps (to 6.74%) and five year fixed by 21 bps (to 7.34%).

The rate cuts come as a survey of 1,000 mortgage holders by Mortgage Choice has found that half would use a rate cut to pay more towards their home loan, rather than spend it at the shops. 

The survey emphasised the savings mindset of mortgage holders, with a further 30% saying they would “save more money in some other way”. 

“Our new national survey discovered only one in five of the 1,000-plus respondents, all of whom were mortgage holders, will spend more if interest rates drop. In fact, every second person will simply contribute all extra funds into their home loan,” says Mortgage Choice spokeswoman Kristy Sheppard. 

“Ninety-six per cent will save more money or the same as they have been if rates fall, which clearly demonstrates the mindset of today’s cautious consumer. De-leveraging while building a protective financial shield against tougher times is very much at the forefront of their decision making. 

“Our findings also indicate current interest rates aren’t contributing to borrower stress as a number of commentators suggest. What they are doing is stopping the majority of mortgage holders from creating a bigger financial buffer via making extra repayments.” 

Using the national average mortgage size of $288,100 and the benchmark basic variable rate of 7.11% (which is the average rate across the major four banks), borrowers will save $46 per month if rates drop by 0.25%, mortgage comparison website RateCity.com.au has found. 

Interest rate markets are still pricing in a rate cut this year with Westpac expecting rates to fall before the end of the year and 1% to be shaved off the official rate over the next 12 months.

The Commonwealth Bank expects rates to rise by February 2012.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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