Digital bank sets record-low mortgage rate

A big-four bank's online subsidiary is angling to capture new customers with a limited-time deal

Digital bank sets record-low mortgage rate

Mortgage rates have hit a new record low, thanks to the digital arm of a big-four bank setting the lowest fixed-term rate ever.

UBank, the digital bank owned by NAB, has lowered its three-year fixed rate to 1.75% for owner-occupier loans paying both principal and interest, according to a report by The Australian. That’s the mortgage rate in the Australian residential lending market.

The Reserve Bank of Australia’s decision to lower the cash rate in response to the COVID-19 pandemic has put downward pressure on lending. The cash rate currently sits at a record low of 0.1% – which allows banks to borrow money at a cheaper rate and pass that savings on to consumers.

However, UBank’s record-low rate will only be available until 26 February. The low rate is part of a play by UBank to snap up a share of the growing number of refinancing and new customers taking advantage of the competitive lending environment.

“Rates are at an all-time low,” UBank chief executive Philippa Watson said. “If you’ve been toying with the idea of fixing all or some of your home loan, then I encourage you to explore the most competitive rates, as you could be saving thousands.”

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The average existing owner-occupier rate is currently 3.09%, according to RBA data. A RateCity analysis found that a homeowner with an outstanding loan of $400,000 could save more than $15,000 over three years with UBank’s new rate.

Sally Tindall, RateCity research director, said UBank was attempting to push customers to act fast with by making the rate available for only a short time.

“UBank’s decision to offer a market-leading rate for just over a month is designed to get people to act,” Tindall told The Australian. “Putting an expiry date on this deal could help combat complacency among mortgage holders.”

However, Tindall said that prospective homeowners should weigh their options before locking in a fixed rate.

“Fixed rates are typically less flexible than variable ones, so if you want access to an offset account and unlimited repayments, you might look at splitting your loan or consider a variable-rate loan,” she said.