Beat the banks at their game
Author: Nicole Pedersen McKinnon
Date: January 16, 2008
Publication: Sydney Morning Herald (subscribe)
If you are rushing to fix your mortgage - stop! The banks are way ahead of you.
That all the big five institutions have now put up interest rates independent of the Reserve Bank is disturbing indeed. But the last thing you should do is panic and commit to a rate for the next few years.
Why? The banks knew that increasing the variable rate to cover higher costs due to the credit crunch would generate bad publicity.
So, in anticipation of a rush to lock in rates, some quietly upped fixed loans about a week before variable loans. In other words, they sought to cash in on the reaction.
You can't have missed that the big five have now increased their variable rates: in order, NAB, ANZ, CBA and, on Friday, St George and Westpac.
ANZ and St George raised their rate by a high 0.2 percentage point (to 8.77 per cent) and copped criticism as a result. Westpac moved a more moderate 0.15 (to 8.72 per cent), NAB by a lower 0.12 (to 8.69 per cent) and CBA by an even smaller 0.1 (to 8.67 per cent).
What you didn't see on the news, however, was that in early January ANZ lifted its fixed rates by 0.25 - more than it subsequently increased the variable rate.
But that's not a patch on biggest lender, the Commonwealth. By only raising variable rates 0.1, it managed to come off as almost magnanimous - except that it had already upped fixed rates by 0.3 percentage points.
By contrast, NAB, Westpac or St George did not seek to cynically profit from customers who were spooked by the increase into fixing.
Data provider Infochoice says all three have a three-year fix of 8.29 per cent. In St George's case, this is a temporary discount for new customers only, NAB has left this rate unchanged since before Christmas and for St George, it is only a slight increase of 0.1 of a percentage point.
The comparable rates from ANZ and CBA are 8.54 per cent and 8.64 per cent, respectively.
At this point you may be saying: but these rates are all below the standard variable rate so if I fix I'll still immediately save. However, you'd be wrong.
No one actually pays the quoted variable rate but receives a discount of between 0.5 and 0.7 percentage point (if you don't, this is the first place to seek to combat rate rises - simply ask your bank).
There's a broader issue in all of this, too: what the RBA will do next.
Evidence is mounting that we are at the top of the interest rate cycle - you have to go back more than 12 years to find rates as high as we now have.
If the subprime crisis at the heart of the credit crunch sends the United States into recession, economic growth here could slow and rates could actually start to fall.
The upshot is that the best way of fighting a rise may be to get a better variable deal.
Infochoice says many institutions still have rates below 8 per cent, including Austral Credit Union, Citibank and Yes Home Loans.
But if you are determined to fix, perhaps to get repayment certainty, some of the best deals come from a surprising source: the online arms of the very banks that have been jacking up the fixed rates on their branch products.
The CBA's Homepath is offering a three-year fix of 8.14 per cent, half a percentage point below its regular product. Meanwhile, the ANZ's One Direct has a fantastic 7.94 per cent deal, 0.6 below.
So, act fast, and you can beat the banks at their own game.