Several of Australia’s major banks have increased their home loan interest rates by up to 0.5%, despite no movement in the cash rate.
Commonwealth Bank, Australia’s largest mortgage lender, has raised rates on fixed-rate investment home loans, effective from April 21, affecting both principal-and-interest and interest-only loans.
Most fixed interest-only investment loans have seen a steep increase of 0.5%, with only the one-year fixed rate having risen by a smaller 0.25%. Fixed-rate principal-and-interest investment loans with terms ranging from two to five years have also seen a rise of 0.25%.
For owner-occupiers, the news isn’t much better with all interest-only fixed-rate home loans rising by 0.25%. Principal-and-interest home loans, on the other hand, are not affected, offering a reprieve to some.
The big question is what these changes look like in dollar figures.
For example, a new $500,000 interest-only investment loan over 25 years, with a three-year fixed-rate term, which has risen by 0.5% would mean investors today could be $2500 a year worse off based on current interest rates. Similarly, a $500,000 interest-only owner-occupier loan over 25 years, with a three-year fixed-rate term, which has risen by 0.25% would make borrowers today about $1250 a year worse off than if they took out the same loan before the rate changes.
Commonwealth Bank says the rate changes have been prompted by new requirements from the Australian Prudential Regulation Authority (APRA).
The APRA regulatory changes, announced in late March, aim to limit the proliferation of interest-only loans, which can become dangerously unaffordable for customers once rates begin to rise from their current record lows.
Other banks following suit with higher rates
CommBank is not the only major lender to change rates in the past week.
Westpac has also introduced changes to a large number of home loans, with interest rates increasing by as much as 0.3% on some products and others decreasing by about the same amount.
Most other changes are smaller, with most investment loans and “fixed options” loans increasing by 0.1%.
Looking outside the major banks, over the past week the following banks and lenders have also increased interest rates on selected home loan products:
- Arab Bank Australia
- Australian Military Bank
- Bank Australia
- Freedom Lend
- Holiday Coast Credit Union
- Hume Bank
- Newcastle Permanent
The key takeaway for consumers looking for a loan should be to compare the options.
With interest rates looking to be at the bottom of the cycle, it’s more likely we will continue to see increases, making the option to fix part or all of your loan attractive to some borrowers.
Whether you choose fixed or variable, interest-only or principal-and-interest, there’s such a wide range in rates available today that you need to make sure you’re not paying too much.