What to do if your lender hasn't passed on the rate cut

The Reserve Bank of Australia has cut the cash rate,  but how can you tell if your lender has passed on the savings? More importantly, what can you do if it hasn't reduced your mortgage interest rate?

In the first week of November, the RBA announced a 15 basis point cut to the cash rate. This brings our already historically low mortgage interest rates down another 0.15% - provided your bank or lender actually passes on the rate cut, of course.

The cash rate is one of many factors that lenders take into consideration when setting their variable mortgage interest rates, as it reflects the price they pay for the funds they lend. The current cash rate is 0.10% and most residential loans are on offer for around 2-2.7%.

This means that, even factoring in the financial toll the pandemic has taken on our economy and the banks, most lenders still have a substantial profit margin of 2-2.5% factored into their rates.

When the cash rate announcement was made on Melbourne Cup Day, many lenders were quick to confirm that they would pass on the rate cut to new and existing borrowers.

However, how these cuts were rolled out varied widely.

Some, such as homeloans.com.au and Athena, confirmed the reduction would be effective immediately.

Others, including the Big Four banks, are delaying the rate reduction for a week - or in NAB's case, up to a month.

Then there were the lenders who announced that their variable home loan rates would remain unchanged, but reductions would apply to their fixed rate loans - a move that will help them encourage customers to stay locked to them for a longer period. CBA is one such example, having slashed its fixed rate mortgages by up to 100 basis points, or a massive 1%. NAB also reduced its 4-year fixed rate to a record-low 1.98%.

If you have a mortgage, how can you navigate all of these changes and make sure you're getting the best value deal - and ideally, not paying a cent more for your mortgage than you need to?

Your first step is to call your bank or lender. Most have stepped up their game when it comes to servicing customers over the phone, so you may wait on the line a minute or two, but it shouldn't be anything like the two-hour-plus delays that were experienced when the pandemic first hit.

Importantly, it will be a good investment of your time. Speaking to someone about your loan can help you find out:

• How much your interest rate is right now. Ask: Did you pass on the rate cut to my loan, in part or in full? If your loan is variable and you're with one of the major banks, there's a good chance your rate didn't move at all.
• Then ask: What is the best rate they can offer you? Just because they didn't pass on the rate cut, it doesn't mean they don't have any scope to negotiate. Ask them if they can provide you with a discount.

You have nothing to lose when asking the question - but everything to gain.

At the moment, the average Sydney mortgage (which the latest ABS figures show sits at around $621,000) will set you back around $2,620 per month, based on a 3% interest rate and a principal and interest loan.

If you can negotiate an interest rate reduction of 0.2%, your monthly repayments will drop to $2,550, a saving of $70 per month or $840 per year. Not a bad result from one phone call!

An even bigger saving could be made if you refinance your loan: on the aforementioned $621,000 mortgage, if you were to refinance from a 3% loan down to one of the competitive fixed rate deals on offer at 1.99%, you could pay $6,000 less in mortgage interest every year - and make greater headway on the principal of your home loan debt. So, if you have a variable rate home loan, there's never been a better time to consider refinancing.

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