Banks keep an extra $18 Billion by charge variable home loan borrowers

A new study by Australia’s leading financial comparison website has estimated Australia’s major four banks charged their variable home loan customers an extra $18 billion by not mirroring Reserve Bank cash rate movements over the past five years.

According to RateCity, the gap between the official cash rate and the benchmark standard variable rate – the average rate of the major four banks ANZ, Commonwealth Bank, NAB and Westpac – has almost doubled since October 2007.

The benchmark standard variable rate was 182 basis points above the cash rate in October 2007. It has gradually increased to 337 basis points currently above the cash rate according to the RateCity study.


Gap between RBA cash rate and benchmark standard variable rate

October 1, 2007

182 basis points

October 18, 2012

337 basis points


+155 basis points

Source:, RBA

Michelle Hutchison, Spokesperson for RateCity, said higher funding costs, greater competition for deposits and slow credit growth mean borrowers need to be prepared for more out of cycle rate movements as lenders look to offset funding pressures and maintain profits.

“The new normal for variable rate home loans is that you’re not likely to receive the entire cash rate movements and you will probably be hit with small hikes out of cycle over your loan term.

“While they may be small amounts each time, the extra costs you will be charged can add up to thousands of dollars if you don’t ensure you’re getting a good value home loan deal,” she said.

According to RateCity, borrowers with a typical $300,000 home loan paid an extra $11,687 in interest over the past five years, from major banks not passing on the full rate cuts.


Gap between RBA cash rate and benchmark standard variable rate

Total monthly repayments with benchmark standard variable rates


Total repayments if benchmark standard variable rate followed cash rate




Source:, RBA

“There’s no point complaining about paying higher than necessary home loan charges because it won’t stop lenders holding back on rate movements. Borrowers need to take action by comparing home loans at, haggling with your lender and switching to better home loan deals.

“You could save a lot more than $11,687 by simply reviewing your home loan every year or two. For instance, by switching a $300,000 home loan once from 6.5 percent to 6 percent, you could potentially save over $35,000 over 30 years.”



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