Why you've got a $372 hole in your pocket today

Why you've got a $372 hole in your pocket today

The overwhelming majority of Australian mortgage holders will be hundreds of dollars worse off from today as lenders hike their variable interest rates.

RateCity research shows that ‘Rate Hike Friday’ will hit mortgage holders by an average of 0.17 percentage points, or $372 per year on a $300,000 home loan.

The hikes come against a backdrop of rate cuts from the Reserve Bank and in the lead up to Christmas when spending typically goes up, rather than down.

There is, however, a silver lining, if customers are willing to stretch their legs.

At least 24 lenders have dropped their variable rates for owner occupiers but people have to be willing to switch banks, because all but one of these lower rates are not available to existing customers.

The rush of ‘new customers only’ bargain basement rates proves that loyalty is no longer even a consideration when it comes to getting one of the cheapest rates on the market.

Just one bank in the RateCity research, CUA, is dropping its basic variable rate for existing customers as well as new ones.

For investors, things aren’t looking as bright.

The chances are today’s hike is the second they’ve had in the last few months after half of the banks brought in higher home loan rates for investors than owner-occupiers.

This double whammy for investors has started to add up, with the gap between investor rates and owner-occupier rates now as wide as 1.44 percentage points.

The latest ABS data shows that this investor change is having an impact on buyer behaviour – last month saw the biggest monthly decline in investor borrowing since 2008.

VARIABLE RATE HIKES

Lender

Increase

Old standard variable rate

New standard variable rate

Effective date

Adelaide Bank (smartfit loan)

0.12

4.14

4.26

20-Nov-15

AMP Bank (owner-occ)

0.18

5.55

5.73

20-Nov-15

ANZ

0.18

5.38

5.56

20-Nov-15

Bank of Queensland

0.18

5.56

5.74

20-Nov-15

Bank of SA

0.15

5.52

5.67

20-Nov-15

Bankwest

0.18

5.47

5.65

17-Nov-15

Bank of Melbourne

0.15

5.45

5.60

20-Nov-15

Bendigo Bank

0.12

5.56

5.68

20-Nov-15

Citibank

0.2

5.74

5.94

30-Oct-15

Commonwealth Bank

0.15

5.45

5.60

20-Nov-15

CUA

0.13*

4.93

5.06

24-Nov-15

ING

0.18

4.84

5.02

15-Jan-16

Macquarie

0.2

5.5

5.70

20-Nov-15

ME Bank

0.2

4.88

5.08

20-Nov-15

NAB

0.17

5.43

5.60

12-Nov-15

St George

0.15

5.54

5.69

20-Nov-15

Suncorp

0.16

5.54

5.70

20-Nov-15

Westpac

0.2

5.48

5.68

20-Nov-15

RATE CUTS

Lenders who have cut owner occupied variable rates since July

Lender

Biggest Cut

AMP Bank

-0.13%

Including rate increase on 20 Nov 2015

Aussie

-0.23%

Bank Australia

-0.12%

Bankwest

-0.26%

Including rate increase on 17 Nov 2015

Beyond Bank

-0.15%

Community First CU

-0.26%

CUA

-0.14%

Starts 24 Nov 2015 for all variable customers

Easy Street Fin Services

-0.26%

Encompass Credit Union

-0.20%

Greater Building Society

-0.35%

Heritage Bank

-0.21%

Homeloans

-0.30%

HSBC

-0.13%

Hunter United

-0.05%

ING DIRECT

-0.30%

Rate will go up 0.18% on 15 Jan 2016

ME Bank

-0.39%

Including rate increase on 20 Nov 2015

Mortgage HOUSE

-0.08%

MyState

-0.12%

Pacific Mortgage Group

-0.09%

Reduce Home Loans

-0.04%

State Custodians

-0.10%

Suncorp Bank

-0.10%

The Rock Building Soc

-0.12%

UBank

-0.10%

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Learn more about home loans

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

What is the difference between a fixed rate and variable rate?

A variable rate can fluctuate over the life of a loan as determined by your lender. While the rate is broadly reflective of market conditions, including the Reserve Bank’s cash rate, it is by no means the sole determining factor in your bank’s decision-making process.

A fixed rate is one which is set for a period of time, regardless of market fluctuations. Fixed rates can be as short as one year or as long as 15 years however after this time it will revert to a variable rate, unless you negotiate with your bank to enter into another fixed term agreement

Variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts however fixed rates do offer customers a level of security by knowing exactly how much they need to set aside each month.

What is a variable home loan?

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

What is the difference between fixed, variable and split rates?

Fixed rate

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Variable rate

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

Split rates home loans

A split loan lets you fix a portion of your loan, and leave the remainder on a variable rate so you get a bet each way on fixed and variable rates. A split loan is a good option for someone who wants the peace of mind that regular repayments can provide but still wants to retain some of the additional features variable loans typically provide such as an offset account. Of course, with most things in life, split loans are still a trade-off. If the variable rate goes down, for example, the lower interest rates will only apply to the section that you didn’t fix.

What is a standard variable rate (SVR)?

The standard variable rate (SVR) is the interest rate a lender applies to their standard home loan. It is a variable interest rate which is normally used as a benchmark from which they price their other variable rate home loan products.

A standard variable rate home loan typically includes most, if not all the features the lender has on offer, such as an offset account, but it often comes with a higher interest rate attached than their most ‘basic’ product on offer (usually referred to as their basic variable rate mortgage).

Does the Home Loan Rate Promise apply to discounted interest rate offers, such as honeymoon rates?

No. Temporary discounts to home loan interest rates will expire after a limited time, so they aren’t valid for comparing home loans as part of the Home Loan Rate Promise.

However, if your home loan has been discounted from the lender’s standard rate on a permanent basis, you can check if we can find an even lower rate that could apply to you.

What is a comparison rate?

The comparison rate is a more inclusive way of comparing home loans that factors in not only on the interest rate but also the majority of upfront and ongoing charges that add to the total cost of a home loan.

The rate is calculated using an industry-wide formula based on a $150,000 loan over a 25-year period and includes things like revert rates after an introductory or fixed rate period, application fees and monthly account keeping fees.

In Australia, all lenders are required by law to publish the comparison rate alongside their advertised rate so people can compare products easily.

What is a honeymoon rate and honeymoon period?

Also known as the ‘introductory rate’ or ‘bait rate’, a honeymoon rate is a special low interest rate applied to loans for an initial period to attract more borrowers. The honeymoon period when this lower rate applies usually varies from six months to one year. The rate can be fixed, capped or variable for the first 12 months of the loan. At the end of the term, the loan reverts to the standard variable rate.

How do I find out my current interest rate and how much is owing on my loan?

Your bank statements and/or your internet banking should show these details. If you are not sure, call your bank or estimate.

What is Lender's Mortgage Insurance (LMI)

Lender’s Mortgage Insurance (LMI) is an insurance policy, which protects your bank if you default on the loan (i.e. stop paying your loan). While the bank takes out the policy, you pay the premium. Generally you can ‘capitalise’ the premium – meaning that instead of paying it upfront in one hit, you roll it into the total amount you owe, and it becomes part of your regular mortgage repayments.

This additional cost is typically required when you have less than 20 per cent savings, or a loan with an LVR of 80 per cent or higher, and it can run into thousands of dollars. The policy is not transferrable, so if you sell and buy a new house with less than 20 per cent equity, then you’ll be required to foot the bill again, even if you borrow with the same lender.

Some lenders, such as the Commonwealth Bank, charge customers with a small deposit a Low Deposit Premium or LDP instead of LMI. The cost of the premium is included in your loan so you pay it off over time.

How do I apply for a home loan pre-approval from Commonwealth Bank?

To apply for a Commbank home loan pre-approval, you can either call the bank at 13 2224 or meet one of the bank’s lending specialists. You can set up a meeting online if you wish. You’ll need to do some homework before contacting the bank, such as gathering information on the kind of properties you’d like to buy and their prices.

Preparing a financial summary, which lists all your income sources as well as significant expenses, can also help determine how much you can afford to borrow. You may also want to check your credit score before applying for pre-approval.

It’s worth remembering that a CBA home loan pre-approval doesn’t guarantee that you’ll get the loan. Once you get the pre-approval, you’ll have about three to six months to decide on a property and apply for the home loan. The bank will then confirm that the property is suitable for the loan before fully approving it.

How to apply for a pre-approval home loan from Bendigo Bank?

Applying for pre-approval on your home loan gives you confidence in your ability to secure finance while looking at potential new homes. You can get a free and personalised pre-approval home loan from Bendigo Bank in just a few minutes, without any credit checks or paperwork. 

Bendigo Bank offers pre-approval for home loans that allow you to understand the home loan size you may be able to get before looking for a new home. 

With the pre-approval, Bendigo Bank provides an estimate of your borrowing power. This figure incorporates stamp duty, lenders mortgage insurance (LMI) and any first home buyer incentives you may be eligible for. You may also qualify for the First Home Loan Deposit Scheme initiative, depending on your circumstances. 

To apply for a pre-approval on your home loan from Bendigo Bank, all you need to do is fill in a smart form. You could also contact the bank directly on 1300 236 344.