Borrowers should not be paying more than 6% on their home loan, RBA charts suggest

Any borrower stuck on a home loan rate in excess of 6% per annum is paying too much and should negotiate a better deal with their bank or considering refinancing, the latest RBA chart pack reveals.

The RBA provides the following graph comparing indicative bank lending rates, the actual rates borrowers pay on their home loans and the cash rate.

Apart from showing that banks have increased their margins on home loans post-GFC, it highlights that while indicative rates (usually the standard variable rate) offered by banks remains well above 6%, the actual rate most borrowers are paying on their outstanding home loan has fallen below 6% for the first time since mid-2009 – also the last time the cash rate was at 3%.

In other words, significant discounts to the standard variable rate are being offered by banks - to most borrowers.

ANZ and the Commonwealth Bank have a standard variable rate of 6.40%, NAB is at 6.38% and Westpac the highest at 6.51%.

Last month Commonwealth Bank CEO Ian Narev explained that the standard variable rate was just the reference rate from which the bank prices its mortgages for different customers and that no one paid the bank's 6.4% standard variable rate.

Two non-bank lenders – State Custodians and Easy Street – are currently offering variable rates below 4.99%.

The RBA chart pack also reveals how steeply three-year fixed rates have fallen over the last few years in line with the three-year maturity swap rate – though not as steeply for small business borrowers, where they remain above 6%.

Currently borrowers can secure two-year fixed rates at 4.99% from all the major banks while a number of smaller lenders are offering three-year fixed rates at 4.99%.

Despite the steep drop, margins for lenders remain very healthy.