CBA announces landmark cut to interest rates

Major banks are continuing to announce large cuts to fixed rate deals.

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Australia’s biggest bank has stunned borrowers by slashing its fixed mortgage rates — unleashing its first loan with a “4” in front in years.

Commonwealth Bank today unveiled a two-year fixed-rate special of 4.99 per cent, breaking through the psychological 5 per cent barrier in the latest round of mortgage warfare.

It’s a move analysts claim may be designed to turn heads and win back borrowers who are increasingly turning to variable rate products amid warnings of further Reserve Bank moves to cut the cash rate.

Experts are widely tipping the Reserve Bank of Australia to deliver another cash rate cut later this year but much will hinge on the latest unemployment figures set to be released this week.

CBA’s latest fixed rate deal comes with strings attached. It’s strictly limited, and only open to owner-occupiers paying principal and interest with deposits of at least 30 per cent.

The shock move follows rival Westpac’s cuts in late August, which pushed its lowest advertised fixed rate down to 4.89 per cent.

Canstar insights director Sally Tindall said CBA’s move is a clear attempt to stay in the game and stop customers drifting to cheaper rivals.

Ms Tindall said CBA’s latest move was designed to “turn heads” but warned borrowers not to be blinded by the headline figure.

“At 4.99 per cent, fixed for two years, CBA’s new loan looks attractive. However, it’s only for a limited time and borrowers need to be living in the home they own with at least 30 per cent equity to be eligible,” she said.

MORE: Bank job cuts come back to haunt homeowners

The RBA is widely expected to announce another cut later this year.

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“Fixed rates under 5 per cent are no longer a rarity. At the start of the year there wasn’t a single one, now we’ve got more than 30 lenders in this space. The competition is heating up as banks encourage more borrowers to lock in.”

Westpac remains the market leader for fixed rates across the board, except in the 3-year term where it shares the crown with NAB.

More than 30 lenders now offer at least one fixed rate under 5 per cent, according to Canstar.

At the very bottom of the pile sits Pacific Mortgage Group and Australian Mutual Bank, both offering a two-year fixed deal at 4.64 per cent for owner-occupiers.

Ms Tindall cautioned borrowers against rushing into deals simply because they looked cheap.

“Smaller lenders are offering rates as low as 4.64 per cent,” she said.

“While the thought of a rate starting with a ‘4’ might be tempting, don’t just be swayed by the headline number. Whether or not you should fix should also come down to your personal circumstances and appetite for certainty.”

Ms Tindall added that borrowers should weigh up their options carefully.

“Keep a cool head when it comes to limited time offers. The mortgage market is flush with competition so don’t feel like there’s only one option available to you.

“The RBA has said at least one more cash rate cut is likely, however, exactly how many will come our way and in what time frame is still very much up in the air.”