20110528.  BRW.  Torquay. Generic Real Estate.  Property, for sale, sold, housing, growth, development, housing market, greater melbourne, home, residential, real estate, home buyer, rent, lease, land, interest rates, building.Photograph by Arsineh Houspian.  +(61) 401 320 173.  arsineh@arsineh.com

If Europe fails to extricate itself from its debt mess, rates here could fall fast. Photo: Arsineh Houspian

THERE is very little point to a rate cut unless mortgage holders feel the benefit. In fact, a cut that is not passed on is more likely to increase consumer caution than entice us to loosen the purse strings as intended, thus stimulating the economy.

The ridiculous stand-off last week as the big banks waited to see how the first would respond did nothing to ease the mounting concerns of the nation's mortgage holders. ANZ's audacious announcement that it will move rates independently of the Reserve from now on can only mean fewer cuts in the future.

You might have missed that in all the pom-pom shaking when - for the last time - it delivered the full 25 basis points.

What is vital to realise, however, is that whatever your bank did or does, you can secure a rate cut - and possibly more than one.

The back-to-back decreases mean the official rate is now 4.25 per cent. The best rate you can get on a home loan today is only about two percentage points above that.

For comparison, the big banks have actually been tracking more than a percentage point above that again. So rather than being held to ransom by them as they play a self-interested game of chicken, simply switch to save.

Institutions are still in the throes of adjusting for last Tuesday's cut, so exact rates aren't yet available but the best are from online lenders. These lenders are usually smaller but, crucially, have no branch networks so save on operating costs and can undercut the bigger players.

Ones to look out for include eMoney, loans.com.au, Better Option and UBank (actually owned by NAB).

Let's put some figures on it. If you had a $300,000 loan, the latest cut represents a saving of about $50 a month. Together with last month's cut, that's $100.

But also get a full 1 per cent reduction by switching to a more competitive offering and that jumps to $238.

Granted, it would be lovely to have that much extra in your pocket for Christmas. But you actually have the opportunity to turn the money into far, far more if you instead keep paying it into your mortgage.

If your lender has cut by 25 basis points and you maintain your repayments at the same level, you will save $25,000 in interest and repay your loan 1½ years early. If they also delivered a Melbourne Cup day rate cut, that rises to nearly $50,000 and three years.

But if they didn't, you might be able to move from an average of 7.5 per cent pre-cut to 6.25 per cent post. Keep payments the same and your savings leap to $73,000 and 5½ years.

Remember, that's not costing you a cent more than you're already paying (bar possibly some remortgaging costs and what now has to be no more than a small break-fee - but ask your new lender to waive the former and see if they'll pay the latter).

Be a little cautious about fixed rates right now. Yes, these have moved below standard variable rates, which increases their appeal. Late last week you could get 5.94 per cent with Citibank, 5.95 per cent from Heritage Bank and 5.99 per cent from Macquarie Bank, fixed for three years.

But if Europe fails to extricate itself from its debt mess, interest rates here could fall fast. Indeed the market believes they'll drop another 1.25 percentage points to 3 per cent next year.

The last thing you want is to fix at the top of the interest rate cycle and be forced to watch in despair as they drop (even if banks don't pass on all the cuts).

Only ever fix half your mortgage and never for more than three years. Interest rates are far too unpredictable to commit for any greater length of time.

Follow this writer on Twitter @NicolePedMcK