8 May 2015,
 0

Interest Rate Cuts – It’s all in the marketing!

Interest Rate Cuts are on again… But what does it all mean for you?

On Tuesday 5th May the Reserve Bank of Australia announced a rate cut of 0.25%, that is all good news right?

I wanted to spend a little of your time with a bit of an attempt at a satirical piece negotiating our way through some of ‘spin‘ the marketing departments of banks put out with their interest rate announcements  – I will try to give you a clearer picture of how things stand.

And even maybe motivate you to look at your home loan rate and make sure it is the best you can get.

Standard Variable Interest Rates (SVR)

Every time there is a rate change all the majors want you to focus on the Standard Variable Interest Rate, not the actual interest rate you have on your loan, but the SVR.

I want to emphasise that nobody, I repeat NOBODY should be paying the SVR. But the banks want to market this because they think they can look like champions if they offer you some kind of discount off that rate.

 

For Example let’s look at a loan of say $300,000

Before the rate cut ANZ & NAB had their SVR as 5.63%, Combank were 5.65% & Westpac  5.70%

  • But to be competitive they need to offer a discount of 1% off this SVR
  • i.e. your interest rate should be 4.63% or better

 

After the rate cut that equates to – 4.38% or Better, and you can get lots better

 

Let’s focus on the press releases from a couple of the banks

NAB have spent a huge amount of time & money over the past 4-5 years telling us how good they are because they had the lowest SVR of all the major banks. What is interesting, is in one decision this week they have waisted all this money by only passing on 0.2% of the cut…. But you wouldn’t know it, listen to this… (ok read this)

NAB has announced it will cut its standard variable rate by 0.20% – the lowest it has been since 1978.

Today’s announcement means NAB customers with a standard variable home loan will save an average $50 a month or $600 a year in interest payments.

NAB was committed to competition and providing great value and service to customers.”

Yes, only a 0.20% decrease, but yet don’t they sound like the good guys… (the underlining is my emphasis, as I think it is interesting or funny…)

 

What about Westpac? Last rate cut (in February), Westpac were very selective with their timing and their marketing around their announcement. They waited until all the big guys had announced they would cut by 0.25% and then came out and said how awesome are we, oh how we look after our clients we are wonderful because we are reducing our rates by 0.28%…..

By the way… Westpac have had the highest SVR of all major bank since October 2008…

Westpac also did not pass on the full rate cut… but they instead focus on how good they were last time… “Our mortgage rates are now at their lowest in 50 years. Today’s reduction in home loan rates, coupled with the 0.28% reduction announced in February, will save homeowners on the Premier Advantage Package $1,104 a year in repayments on an average mortgage of $300,000.”

 

And then this little comment, again from Westpac

Under the Premier Advantage Package new borrowers, ….,  will be able to take advantage of a 0.90% discount on the latest headline standard variable rate if they take out a loan above $250,000. This means they would pay no more than 4.58% on the current rate. 

Homeowners looking for security and peace of mind about their mortgage repayments could choose to fix all or part of their mortgage through attractive fixed rate package discount offers including a two year rate of 4.59% or a three year rate of 4.69%.

If you took note of my comment above…. In the old money (ok like Monday) 4.58% was a good interest rate BEFORE the Reserve bank reduced interest rates…

And as for Fixed rates 3 year 4.69% is also very Average especially when there are a number of lenders offering 3.99% for 3 years…

Summary….

So as of today… here are the SVR rates, but please, please remember it is about the discount off this rate that really matters.

ANZ = 5.38% (a 0.25% cut)

NAB = 5.43% (a 0.2% cut)

Commonwealth = 5.45% (a 0.2% cut)

Westpac = 5.48% (a 0.22% cut)

Don’t think I am just picking on the 2 red banks here, the yellow and the Blue ones are not much better, but I think you get my point.

The Key here is not lo listening to what the banks tell you. Banks (and Lenders) do not give advice so don’t get confused here. They just sell products and like all marketing want you to believe they are the best.

Where there is confusion because are they selling you the best they can offer you or are they just telling you it is the best.. how do you really know?

Get independent advice from someone who works for you… someone who is say a professional and working with lots of different Banks & Lenders and can give you clear and concise evidence across a range of Lenders. Know anyone???

What should you do now?

  1. Call me to review your home loan I can help you make an informed, rational decision on the best thing for you.
  2. Or request a free home loan Health check by clicking here
  3. Don’t believe the banks marketing
  4. If you feel loyal to the bank, buy shares in the bank
  5. Don’t make a financial decision based on who gave you a dollarmite account when you were at school.

 

Cheers

David Johnson – The Home loan Guy

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