Banks are lifting mortgage interest rates

Banks are lifting mortgage interest rates

Just last week, two of the “Big 4” banks in Australia started their upwards march towards profitable new mortgage interest rates. NAB was the first one to move (March 16th), followed by Westpac a day after. It was expected that ANZ and CBA were to follow. As we rightly analysed in our previous article, ANZ was first to move for interest-only (owner-occupiers) and investor mortgages.

Fortunately, ANZ has left their standard variable rate for owner-occupiers paying interest and principal at 5.25%.

The CBA was quick to join last, by raising owner-occupier rates for principal and interest payments by 3 basis points to the equal 5.25% as ANZ.

How does this affect my mortgage?

For the average Australian who has taken a mortgage out on their home, what exactly does this mean?

Well, over the past year, those variable rate hikes have taken a chunk of your home’s income with them. As Nicole Pederson-McKinnon from the SMH put it, “millions of Aussies will bitch but not bother to switch”.

I’m taking a guess here and saying that most homebuyers won’t have made the calculations regarding how much these increases in owner-occupier variable rates have affected their disposable income, so I decided to make it clear. See the table blow:

“Big 4”: Changes in Owner Occupier mortgages/ Principal & Interest Repayments Since April 2016

Home loan rates increase since April 2016.gif

What’s the damage of the variable rates increase?

This table makes it quite evident. Regardless of the loan amount you’ve taken on your home, you are losing money.

On a monthly basis it may come down to a few groceries, a little something extra you might want or something you might need for your home. Perhaps a small present for someone or a few beers at the pub around the corner. One cannot underestimate the extent to which a few bucks a month can be stretched or used for leisure.

On a yearly basis you may be losing (at the lower range) a minimum of $258 each year. On the higher end loans, you may be out of pocket by $1,560 each year. A new TV or a great couch out the window?

In the long-term, over the course of a 25-year loan, the increase in your payment leaps beyond double-digit dollar amounts and jumps right into the multiple thousands. Think about what you could buy with this money. In many cases you’re saying goodbye to a family holiday, better education opportunities for the kids, a new car or even a chance to build greater wealth. Sad isn’t it.

But what exactly are you going to do about it?

I’ll give you two quick and essential tips that might help you with that answer:

  1. Don’t just take the deal on the table. Rather, negotiate your way to a better rate. Speak to your bank.
  2. Search for choices. There will always be competition, and this is good for you. Take advantage and find the lowest rate possible.

While these banks may be happy lifting your rates, it doesn’t mean you have to be. Ultimately, cash has been slowly leaving your pocket every time the words “lift in rates” is stamped across a headline.

It’s important to understand, as we discussed with our CEO Ranin Mendis, that simply because you don’t see or feel the money leaving your wallet doesn’t mean it isn’t. And the only way to stop this madness is to realize what is happening and decide to change it.

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