TSB's new offer represents a cut of 20 basis points from the old rate, and is available to borrowers from tomorrow.
The bank, led by Donna Cooper (pictured), has cut its one year carded rate to 3.89%.
The TSB home loan is as sharp as Heartland Bank's 2.89% online mortgage rate. Only China Construction Bank's 2.80% loan is cheaper.
ANZ has also announced a one year rate cut, slashing its loan to 2.99%, a fall of six basis points.
ANZ's 18 month special rate falls to 3.2%, and two year rate to 3.25%.
The rate cuts are part of the latest price war between lenders.
It comes as financial markets price in a strong chance of another official cash rate cut this year, amid an unprecedented period of turmoil for the economy.
China Construction Bank slashed rates last week, while ASB and Kiwibank both cut home loan rates below 3% for the first time on Friday.
Rates below 3% could be a regular feature of the housing market for some time. The Reserve Bank will outline its latest Monetary Policy Statement this week, where it is expected to open the door to further rate cuts.