start of something extraordinary

Three lenders cut some of their variable interest rates in the past week. Unsurprisingly, they did not include the major banks, but financial comparison website RateCity says it is “the start of something extraordinary”.

IMB cut one home loan by 0.05 percentage points, BMC Mortgage cut several loans by 0.10 percentage points and Holiday Coast Credit Union cut several loans by 0.20 percentage points.

RateCity said it was the first time it had recorded three lenders cutting variable home loan rates out-of-cycle.

"While there have been several rate increases out-of-cycle, we've never seen lenders drop variable home loan rates while the cash rate remains stable,” said RateCity spokesperson Michelle Hutchison.

"Lenders have room to move after keeping on average 0.42 percentage points of the Reserve Bank's 1.75 percentage point cut to the cash rate since November 2011 from variable home loan borrowers. If these three lenders can afford to cut variable rates out-of-cycle, other lenders - including the major banks - have no excuse to sit on their hands."

Hutchison said borrowers needed to take control of their home loan instead of waiting for a discount from their lender.

"This is the start of something extraordinary as it's likely to shake up the home loan market,” Hutchison said. “It opens the door for borrowers to expect better deals and more discounts without needing to wait for the Reserve Bank to lower the cash rate.

"But it will be up to borrowers to keep your lender in line with the competition: find out what interest rate you're paying, compare your home loan to the rest of the market and demand a discount from your lender or switch to a better deal.”

She said a 0.20 percentage point discount - for instance, for a $300,000 home loan dropping from 5.9% to 5.7% - could mean a saving of $456 per year or $13,680 over 30 years.