The RBA’s decision this week to maintain the cash rate this week at 4.1% has been met with varied reactions in the media.
Some outlets highlight the RBA’s cautious approach amid global trade uncertainties (i.e. the Trump factor) and a desire for more data before further action. Others note that the board did not explicitly discuss a rate cut, emphasising a consensus to hold rates steady.
In making their announcement, the RBA highlighted that underlying inflation is moderating, with the continued decline being a welcome development, so that is great news. Consequently, there is growing confidence that another rate cut could be announced in may, just after the federal election.
In this week’s newsletter, we look at repricing and why lenders are against the practice.
Home loan repricing involves renegotiating the interest rate of an existing mortgage with your current lender, aiming to secure a lower rate without altering other loan terms. Unlike refinancing, which entails switching to a new loan—often with a different lender—repricing allows borrowers to adjust their interest rates while maintaining their current loan structure. The goal of course is to reduced monthly repayments and overall interest savings.
Why do the banks hate it?
Recently, Australian banks have expressed concerns regarding the repricing of home loans. One primary issue is that repricing can reduce the profitability of existing loans for banks, especially when interest rates decline. Additionally, the administrative costs associated with processing repricing requests can be substantial. Moreover, banks are wary that aggressive repricing strategies may lead to a “race to the bottom,” eroding overall profit margins in a highly competitive market.
These factors have prompted banks to scrutinise repricing practices more closely, balancing the need to retain customers with maintaining financial stability. As a result, borrowers may find that while repricing remains an option, banks might implement stricter criteria or offer less favourable adjustments to mitigate potential downsides.
Competing priorities collide
Banks aim to protect profit margins by keeping interest rates on home loans as high as the market allows. In contrast, mortgage brokers are compelled to find the most competitive rates and terms for their clients to build trust and secure future business. This creates a natural tension—what’s best for the bank’s bottom line may not align with what’s best for the borrower, putting brokers and lenders at odds.
With over 70% of all new home loans being placed by brokers, it is plain to see that banks need brokers so they are treading a fine line when it comes to protecting their interests.
Variable
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR.
1 Year Fixed
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR. At the end of the three year fixed period, the borrowers interest rate will revert to a standard variable rate for the life of the loan.
