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Don’t get caught out with interest rates increases
14 October 2009 |
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| * Your bank just increased your home loan rate by 0.25% (or did they?)
* How to keep your lender honest
If you have a mortgage the odds are you will now be paying an extra $50 per month repayment (if you are lucky that is). Last week the Reserve Bank announced an increase in the official Cash Rate and you had better expect more, similar announcements to come in the next few months.
It is ultimately the banks’ decision as to how this translates to mortgage rates (the rate that is meaningful most Australians). While most of us accept that the banks will pass on the changes to the Cash Rate in the form of mortgage rates that is not always the case and even when it is, is that fair?
Just 41 per cent of ‘Standard Variable Rate’ loans examined by Infochoice.com.au have so far been affected by the 0.25 per cent rise in official interest rates. The actual amount by which lenders raised their rates in response varied from between 0.10 per cent to 0.35 per cent, a significant variation.
Interestingly, 88 per cent of all the banks listed on Infochoice.com.au have already made adjustments to their home loan rates. Only 36 per cent of all Credit Unions and Building Societies and 23 per cent of Non-Bank Lenders have increased their rates so far.
Prior to this month’s official RBA rate increase, at least two lenders were guilty of raising their standard variable mortgage rates outside of moves by the RBA. Heritage Building Society, the biggest Building Society by total assets, and the Tasmanian credit union B&E quietly raised rates on their variable home loans by 0.15 and 0.10 per cent respectively last month.
RAMS Home Loans and Big Sky Credit Union responded to the quarter per cent rate rise by raising their rates by 0.35 and 0.31 per cent respectively.
Hunter United Credit Union and Police Credit Union have only increased their rates by 0.10 per cent.
Are you one of the “lucky” ones whose lender only increases your home loan by 0.25%? Maybe you are not so luck after all.
Cast your mind back just a year ago when the RBA was dropping the Cash Rate, and on average lenders decided to withhold a portion of that decrease. The line the banks used back then was that their real or effective cost of accessing funds was not solely linked to the RBA rate and they were in fact paying a premium which meant that when the RBA decreased rates by 4.25% your mortgage rate may have only decreased by 3.84% (the case for the average customer of the major 4 banks).
If this logic applies then surely the lenders should be increasing their mortgage rates by less than the RBA rate? If we have returned to more “normal” conditions then they should be handing back that 0.41% margin the added last year by withholding a portion of the decreasing rates. Something doesn’t seem quite right here.
It all serves to underline the old lessons for borrowers in the modern world of banking. Don't set and forget your loans and accounts, review them regularly, and shop around comparing widely. Don't be afraid to vote with your feet and move elsewhere.
Home loans are a very competitive area of banking with close to 700 variable and fixed home loan products on offer. Australians who use this knowledge to their advantage will get the best out of their banking.
Don't be afraid to seriously consider lenders outside the major banks after all the risk lies with the lender not you (it’s their money after all) and they are subject to the same strict regulations as the major banks.
Re-financing is often not as expensive and is more convenient than you may think. By reducing your mortgage rate by just 0.25% you could save over $15,000 over the life of your loan while exit fees could be as low as $200.
At the very least, more often than not you may win by going back to your lender and demanding a better deal based on other rates out there in the market.
Are you getting the best deal? Click here to compare competitive home loan products.
RATES SNAPSHOT
National Market Range - October 13
Standard Variable 4.79% - 6.45%
Basic Variable 4.78% - 5.99%
1 Year Intro 3.67% - 6.04%
3 Year Fixed 6.59% - 7.89%
Investment Variable 4.79% - 6.45%
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| Source : Infochoice.com.au |
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| 30 October 2009 | - NAB could move raise rates up |
| | - ANZ backs away from no rate rise commitment |
| | - Westpac says: talk to our branch manager |
| | - Banks to pass on regulation costs to customers |
| | - Indian banking team opens doors |
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| 29 October 2009 | - Investors flock to property but fear rate rises |
| | - NAB slugs borrowers |
| | - House prices boom again |
| | - Land prices go up |
| | - Hot property investment locations named |
| | - ANZ lives in your world |
| | - 0.25 per cent rate rise coming next week |
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| 28 October 2009 | - Switch banks and save $4,300 |
| | - Credit Unions have cheapest personal loans |
| | - Westpac says rates may have to go up |
| | - Customers rate ANZ the favourite bank |
| | - Personal loans a good alternative to cards |
| | - High income earners like Westpac |
| | - Commonwealth upgrades Netbank |
| | - Netbank gets better for business |
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| 27 October 2009 | - Big banks can’t rule out big rate rises |
| | - MacBank to sell Bendigo home loans |
| | - We lend responsibly say ANZ |
| | - Home buyers fear missing out as prices soar |
| | - Climate change threatens homes |
| | - Suncorp term deposits promise higher returns |
| | - Business turning against NAB |
| | - Your info is safe say banks |
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| 26 October 2009 | - ANZ rules out rate increases |
| | - Big banks raise fixed rate loans |
| | - Melbourne boom to push rates up |
| | - Amazing Melbourne auction results continue |
| | - Customer info being sent overseas |
| | - Bank investors brace for earning season |
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| 23 October 2009 | - Make your money work for you |
| | - Rates could hit 10% in 2 years |
| | - Big banks bounce back |
| | - First home buyers - get your loan application done |
| | - ME bank opens more Melbourne branches |
| | - Scam phone survey targets bank customers |
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| 22 October 2009 | - House prices to double |
| | - RBA divided on rate rises |
| | - Rate tipped to rise by 0.5 per cent |
| | - Bendigo most popular bank |
| | - South West Credit open for lending |
| | - Pub/club ATMs to give limited cash |
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| 21 October 2009 | - Contactless cards cause confusion |
| | - Online brokers cut prices |
| | - ANZ puts retirement bankers in every branch |
| | - Low interest loans get a boost |
| | - PayPal card coming soon |
| | - Bank guarantee needs to end |
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| 20 October 2009 | - Term deposit rate tactics vary |
| | - Vendor boost attracted 60,000 more buyers |
| | - Customers generating cash |
| | - Deposit takers slow to pass on higher rates |
| | - Split rates decision at NAB |
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| 19 October 2009 | - one direct scrapped by ANZ |
| | - UBank: the last of the big bank online brands |
| | - Wave to pay |
| | - AMP wants fewer shareholders |
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| 16 October 2009 | - Seven more rate rises coming soon |
| | - NAB opens the door to big rate rises |
| | - Consumers prefer eftpos to credit |
| | - NAB abolishes monthly account fees |
| | - Time for a new transaction account? |
| | - Other banks reject more fee cutting |
| | - NAB playing catch up in deposit market |
| | - Bank of Queensland has big ambitions |
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| 15 October 2009 | - Home loan borrowers go back to basics |
| | - Borrowers turn against fixed rates |
| | - Voiceprint coming to NAB online bank |
| | - Banks to know everything about you |
| | - Your credit file is about to get screened |
| | - Pay with a wave at IGA supermarkets |
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| 14 October 2009 | - 20 per cent struggling with repayments |
| | - Aussie John says check your rates |
| | - NAB customers hit by computer problem |
| | - St George on go slow |
| | - Fake mortgages net millions |
| | - Community banking celebrates birthday |
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| 13 October 2009 | - St George launch savings account for Gen Y |
| | - Demand outstrips housing supply in NSW |
| | - First home saver accounts a fizzer |
| | - Small business to get financed |
| | - All deposits are guaranteed |
| | - Gen Y shares cash but can’t save it |
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| 12 October 2009 | - Extra credit card benefits without the extra cost |
| | - Innovative mortgages signal change |
| | - Average repayments to rise by $375/month |
| | - Westpac deposit rates hit new high |
| | - RAMS adds extra to rate rise |
| | - Sydney auctions bouncing back |
| | - ANZ cuts more account fees |
| | - CBA selling women’s diary |
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| 09 October 2009 | - Mortgage repayments to rise by $355/month |
| | - Rates rise across the board |
| | - Cards and business loans go up |
| | - Banks boost online savings rates |
| | - CBA says do you need a loan extension? |
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| 08 October 2009 | - Rate Rises - what are the major lenders doing? |
| | - Rate rises: CBA refusing to go first |
| | - CUA tops customer satisfaction survey |
| | - Investors sense the bottom of the market |
| | - Upgraders, investors replacing first home buyers |
| | - CUA losing members |
| | - Mortgage competition gone out the window |
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| 07 October 2009 | - Prepare for Rate Rise or Risk Needing a Second Job |
| | - Mortgage rates set to rise |
| | - Term deposit rates at record highs |
| | - Time to end low interest rates says Stevens |
| | - Homeowners to pay $50/month more |
| | - Many more rate rises to come |
| | - Complaints soar about mortgages and margin loans |
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| 06 October 2009 | - Less competition in banking |
| | - Auction continue to deliver results |
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| 02 October 2009 | - Banks deny rate rise plans |
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| 01 October 2009 | - CUA think pink to support breast cancer research |
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