Getting through the mortgage maze: Chasing the lowest rates as most lenders pass on partial cash rate cut

The dust is starting to settle on the Reserve Bank’s decision to cut the cash rate by 25 basis points this week to 3% – the lowest it has been since September 2009.

Most lenders have announced their decisions, with cuts ranging from 20 basis points to the full 25 and with these new rate cuts kicking in between December 10 and December 24.

Unlike previous decisions, the three major banks that still take their cue from the RBA – NAB, Commonwealth Bank and Westpac – have been relatively quick in announcing decisions to pass on 20 basis points to variable rate mortgage holders, all doing so by Wednesday afternoon.

As a result, NAB continues to offer the lowest standard variable of the big four at 6.38%, followed by Commonwealth Bank at 6.40% and Westpac at 6.51%.

Source: bank websites

The only difference is the timing of the rate cuts, with NAB and the Commonwealth bank’s new variable rates kicking in on December 10 and Westpac borrowers having to wait an extra week.

Bank-bashers will argue Westpac is cashing in at the expense of borrowers by delaying passing on the rate cuts – the big four banks earn an estimated extra $50 million collectively for every day they don't pass on a rate cut.

ANZ borrowers have a longer wait, with the bank making its independent rate review decision on Friday, December 14 – and most likely also passing on 20 basis points to borrowers, meaning a standard variable rate of 6.4%.

Rate cuts are catalysts for many borrowers to reassess their current mortgage and consider refinancing with a more suitable lender, often offering a lower interest rate – a 25-basis-point reduction on a $300,000 home loan over 25 years equals monthly repayment savings of around $50.

The federal government’s ban on exit fees also makes it cheaper to switch lenders, but borrowers should bear in mind that it only applies to variable mortgages dating from July 1, 2011 and does not apply to fixed rate home loans, which still carry hefty exit fees in most cases in the thousands of dollars.

Nevertheless, around one in five borrowers (according to Mortgage Choice figures) are still choosing to refinance into a fixed-rate loan, with one-year fixed rates currently starting from below 5% and three-year fixed rates just over 5%. There is also the option to split your loan between fixed and variable mortgages.