How to find a mortgage rate starting with 4

Competition in the home loan market is continuing to heat up, with a number of lenders sharpening rates ahead of expected cuts from the Reserve Bank in the months ahead.

"Some banks have pre-emptively reduced their fixed rates in anticipation of the August decision," says David Koch, economic director at Compare the Market.

"Depending on their appetite to attract new customers, and where they think rates are headed, they may readjust them again."

One of those is Macquarie Bank. Last week the country's fifth largest lender reduced its two-year fixed home loan rate by 20 basis points to 4.99% p.a. (5.54% p.a. comparison rate).

The offer isn't available to everyone though. Eligibility extends to owner-occupier borrowers who are willing to make principal and interest repayments and have a loan-to-value ratio (LVR) of 70% or below.

Macquarie is by no means the only bank offering a fixed rate below the 5.00% mark to eligible borrowers.

Larger banks like Bank of Queensland, customer-owned institutions like Greater Bank and online players like Easy Street are advertising headline rates starting with a '4' for those willing to fix their rate.

Borrowers may want to give some serious thought before locking in though. After all, there are a number of factors worth considering before deciding on a fixed, variable or split rate.

"Whilst fixed rates may be tempting, it's important to weigh up the pros and cons," Koch says.

"If the cash rate continues to drop, you may miss out on more competitive rates that become available during your fixed rate period."

Will more lenders drop rates if the RBA cuts?

It's possible that the cash rate could drop as soon as next Tuesday (August 12) when the Reserve Bank Monetary Policy Board announces its next monetary policy decision.

At present, there's plenty of speculation that the Board will cut interest rates by 25bp to 3.60% after new data released last week indicated that inflation is continuing to soften.

Given how competitive the market is at present, Koch expects that if the cash rate is cut, most lenders will pass on the reduction in full in order to remain competitive.

"There's growing speculation we could see multiple rate cuts before the end of the year, so I don't think banks will hesitate to move on this one.

"But of course, banks are not obliged to pass on rate cuts, so discounts are never guaranteed.

"And just because your rate might be reduced, it doesn't necessarily mean you're getting a good deal. It's crucial homeowners be vigilant, to make sure their rate remains competitive."

To underline that point, Koch notes that even a 50-basis point difference between interest rates could have a sizeable impact on the repayments someone is making on a 30-year loan.

"That could represent a saving of $210 on monthly repayments - or $2520 over a year - for someone with an average $660,000 loan."

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