The debate over the true cost of offshore wholesale money continues to rage, as borrowers backed by both sides of government lob shots at the big banks for daring to even consider raising interest rates above the Reserve Bank's 0.25 per cent increase, let alone making enormous profits for share holders.
The banks claim their cost of funding has increased sharply and insist they have to pass that cost on to customers while the Reserve Bank and the government counter by saying there is no justification for rate rises above the official cash rate increase.
Who is telling the truth?
According to financial services research company Canstar Cannex, the real cost of funds to the banks is a very complicated and convoluted thing to unravel.
"It's all very well to speculate but very few outsiders are privy to the real figures of each monetary deal done by the individual banks, however, our research does show one very interesting piece of the bank funding puzzle," Cannex research manager Chris Groth said.
"Our interest rate tracking over the last four years has identified a trend which might just support some of what the banks are saying.
"Prior to the GFC online savings accounts were tracking well below the official cash rate. However, since early 2009 the rates paid to online savings accounts start to track above the official cash rate and they have remained consistently ahead.
"The banks are scrambling over themselves to attract retail deposits to fund their loan books," Mr Groth said.
"While the banks, the government and the Reserve Bank argue over the real cost of funding, Canstar Cannex can confirm that retail deposits are now a more expensive source of funding than they were prior to the GFC.
"This is good news for cashed-up savers but not so good for home loan borrowers."
Adding to the consumer confusion is the current debate about early exit fees, exception fees and the cost to consumers of switching loans. It is little wonder home loan borrowers are nervous about what the future holds.
"In a rate cycle trending upwards there is always the temptation to lock in an interest rate through a fixed-rate product to eliminate the sting of any future rate rises," Mr Groth said.
"We've seen some very attractive fixed rate offers in the market over the past quarter but, by and large, most people prefer to take their chances with variable, as fixed loans account for only 3.4 per cent of borrowers."
Timing is crucial when taking out a fixed rate loan, said Canstar Cannex. Their research shows that in only 9 of the past 36 months (Nov '07 - Oct '10), borrowers would be ahead on their monthly repayments by locking in an interest rate rather than taking a variable rate loan. The greatest return received would have been in April last year where, on a $300,000 loan, almost $3,000 in repayments would have been saved.
"Borrowers should not be discouraged from looking to fix at least part of their loan, as fixing delivers repayment certainty, the potential to save money on repayments and an interest rate buffer should rates increase further," Mr Groth said.
On the flipside, borrowers should remember that they run the risk of losing money if rates decrease and that exiting early from a fixed loan may attract high fees.
"Your best bet is to shop around for the best fixed rates which currently show a 3.29 per cent range between the lowest and highest," Mr Groth said.
"Don't forget that refinancing or switching may attract fees which should be considered when doing the maths on whether fixing or maintaining your current loan is the best way to go."
Canstar Cannex this week released its home loan star ratings report which compared 1,600 home loans from 110 lenders. The report compares fixed and variable home loans for residential as well as investment purposes, awarding five stars to those loans offering outstanding value through a combination of rates and features.
Home loans rose slightly in September, according to figures released this week by the Australian Bureau of Statistics (ABS).
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