Rates Fall As Banks Vie To Lock In Customers
Sydney Morning Herald
Wednesday January 31, 2001
Banks have made an aggressive pitch to ``lock in" customers by slashing fixed home loan interest rates ahead of an expected rate cut by the Reserve Bank next week.
But consumer groups warned borrowers to take care before fixing interest repayments.
Westpac and ANZ joined the other major banks when they dropped fixed rates yesterday.
The Commonwealth led the latest round of reductions when it sliced fixed rates up to 0.3 per cent on Friday. The National Australia Bank responded on Sunday, announcing a six-month fixed rate of 4.99 per cent more than 3 per cent below the average standard variable rate of about 8.05 per cent.
ANZ undercut NAB's deal, offering a 4.95 per cent six-month rate and a discount on application fees, while Westpac reduced some fixed loan options by up to half a per cent. It was the third time Westpac has eased its fixed rates this month.
Despite the competitive rates, the Australian Consumers' Association's finance policy officer, Ms Louise Petschler, said borrowers should be careful before choosing a fixed-rate product.
``We encourage people to think carefully about switching mortgages they should make sure the loan features and interest rate are appropriate," she said.
``By the time you buy your way out of an existing loan and lock into a new one, it can cost you a lot of money so make sure you do your homework."
The Reserve Bank board meets next Tuesday, and many economists expect it to cut official rates by either 0.25 per cent or 0.5 per cent. Many pundits believe this will be followed by further cuts before the middle of the year, meaning variable loan rates will fall considerably.
Fixed loan options tend to be less flexible than those with variable rates. For example, large lump-sum repayments often attract significant penalties with fixed loans, and they normally have limited redrawing facilities.
``Sometimes the penalties [linked to fixed-rate loans] can end up costing thousands of dollars and wipe out any benefit of refinancing anyway," Ms Petschler said.
A spokesman for the Financial Services Consumer Policy Centre, Mr Chris Connolly, warned people should not let short-term incentives convince them to take out a loan before they were ready.
Banks have been able to cut fixed rates because of recent falls in money market interest rates, where banks borrow money.
The interest rate on the 180-day bank bill, often used by banks to fund lending, closed at 5.52 per cent yesterday, 0.73 per cent below the RBA's official interest rate and more than 2 per cent lower than the standard variable interest rate paid by home borrowers. Money market rates have fallen because of expectations that the RBA will cut rates this year.
The chief executive of financial services research firm Cannex, Mr Andrew Willink, said fixed rates often varied according to market conditions and banks frequently used them to woo borrowers.
But he said potential borrowers should not ignore the opportunity being presented.
``If a fixed rate is at least one per cent below what you pay on a variable I think it is worth considering," he said.
The chief executive of independent financial information firm Infochoice, Mr
Chris Gosselin, agreed the short-term fixed options were attractive.
BEST FIXED DEALS SOURCE: BANKCHOICE.COM.AU
Institution variable intro No. intro 1 year
rate rate months fixed rate
ANZ Bank 8.07% 4.95% fixed 6 6.95%
Aussie Home Loans 7.95% n/a n/a 6.95%
AXA Home Loans 7.80% n/a n/a 6.80%
Colonial State Bank 8.07% n/a n/a 6.95%
Commonwealth Bank 8.07% 6.20% fixed 12 6.95%
Westpac* 8.07% 6.19% fixed 12 6.89%
* effective February 2
© 2001 Sydney Morning Herald
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