How to get a home loan rate below 2 per cent
It started as a trickle in July, and there's now a flood of lenders offering home loan interest rates below 2 per cent.
Since Tasmanian lender Bank of us became the first financial institution in Australia to go this low, cheap mortgages have multiplied dramatically and at last count 34 lenders offered at least one sub-2 per cent product, according to comparison website RateCity.
Finding them is easy - even big banks have gone below 2 per cent - but finding a product that suits you may be more difficult.
That's because the majority are fixed-rate mortgages or contain conditions that limit their flexibility.
"As soon as the big banks went below 2 per cent every other lender was forced to at least consider it," says RateCity research director Sally Tindall.
"I do think other lenders will go under 2 per cent and there will be a bidding war in the coming weeks."
Many lenders are trying to lock their customers away from competitors, with the lowest rates being offered on longer-term fixed products.
The Commonwealth Bank, NAB and Westpac all have four-year fixed rates below 1.99 per cent, but none dropped their variable rates when the Reserve Bank of Australia cut its official cash rate by 0.15 percentage points this month to a record low 0.1 per cent.
Tindall says fixed rates can be attractive but for some the conditions can be onerous, including caps on extra repayments, no offset accounts, and costly break fees if you sell your home or refinance with another lender.
"Check what rate you are on at the moment and find out what your bank is offering for new customers," she says.
"Find out what other lenders are willing to offer, either from a comparison website or a broker. Have a frank conversation."
Nick Kelly has been paying a variable-rate mortgage rate in the mid 3 per cent range and is now looking to refinance under 2 per cent through a broker.
He was unable to do this sooner because he started his business, Belle Property Retail, last year.
"You tend to need 12 to 24 months of track record before you can get a loan," says Kelly, who is happy to consider a fixed-rate loan.
"It's a good opportunity to make some inroads into your mortgage," he says.
"I would imagine they're going to go up at some point, back to 5 to 7 per cent."
Lenders display their interest rates on their websites, but Charter Finance managing director Dean Perlman says it's wise to seek advice from a mortgage broker or credit adviser who is "in these markets daily and will know which lender is most appropriate for your specific circumstances".
Perlman says fixed rates are typically 0.3 to 0.5 percentage points below variable rates right now so it may be worth fixing a portion of your mortgage, which can deliver some certainty and some flexibility.
"We hardly ever recommend fixing the full amount," he says.
Perlman says the best ways to take advantage of record low rates include paying off higher-interest bad debts such as credit cards quickly, reviewing your loans and making extra monthly repayments.
"At some point in time, rates will increase, so have your extra repayments benefit you and build up the equity in your home, versus lining the pockets of the banks," he says.
Perlman doesn't expect interest rates to fall much further.
"Seeing variable rates below 2 per cent from the majority of banks is currently unlikely," he says.
LOW ADVERTISED RATES
Variable Reduce Home Loans 1.77%
One-year fixed Homestar Finance/Newcastle Permanent 1.98%
Two-year fixed HSBC 1.88%
Three-year fixed UBank 1.95%
Four-year fixed Westpac 1.89%
Five-year fixed Newcastle Permanent/Aussie 1.99%
Originally published as How to get a home loan rate below 2 per cent