How a marginal 0.2% rate rise can cost the average Australian $16,800

Belinda Punshon 16 October 2015 NEWS

Westpac’s call to lift its variable mortgage rate by 20 basis points will affect over 550,000 Australian households. While it’s unusual for lenders to announce rate hikes outside of the Reserve Bank’s cash rate cycle, speculation suggests that this may be trending.

Westpac-rate-increase-november

On Wednesday 14/10/15 Westpac announced that it would increase its variable mortgage interest rate for owner-occupier and residential investment property loans by 20 basis points effective November 2015, in response to APRA’s tightening capital requirements.

Westpac customers will be adversely (and directly) affected by the bank’s decision to lift variable home loan rates, and it appears that many Australian lenders will follow suit and potentially make unexpected rate changes outside of the Reserve Bank’s cycle.

While a 0.2% rate rise may seem insignificant, it’s estimated that Westpac’s decision to boost its variable rate home loan rates next month will affect over half a million Australian households- an estimated 552,000 in total.

For an average mortgage size of $371,200 with a variable rate of 5.45%, monthly repayments would be $2,102.98. With a 0.2% rate increase, however, monthly repayments would boost to $2,102.98 which means you’d need to budget an extra $46.77 per month. The difference over the average life of a 30-year loan would be a staggering $16,836.06.

Interestingly, according to the May finder.com.au RBA Monthly Survey, some economists predicted that the cash rate would start rising in the fourth quarter of this year- an outcome which seems feasible following Westpac’s decision yesterday.

ALSO READ: Learn more about refinancing your mortgage

ALSO READ: How to refinance your home loan

Read on to find out why Westpac made this decision and how you can prepare for future rate rises, and estimate the impact of rate changes on your mortgage repayments.

Rate changes outside Reserve Bank cycle

Our money expert, Michelle Hutchison, says that since May this year several lenders have initiated out of cycle home loan rate changes and that this could be a result of APRA’s capital requirements for lenders to boost the risk weight for home loans.

"In addition to Westpac’s announcement today that will see the bank lift its variable home loan rates by 0.20 percentage points effective from November 20, we’ve actually seen many out of cycle home loan rate changes after the last cash rate cut in May.

"According to the finder.com.au/home-loans database, 407 variable home loans have changed their rates out of cycle since June this year, 352 of which decreased”, she said.

Why did Westpac increase its variable home loan rate?

According to Michelle Hutchison, Westpac initiated this rate rise as a result of APRA’s intervention with regard to capital requirements for the risk weight on Australian home loans.

"With low funding costs and record high household deposits, it seems unusual for banks to be lifting variable rates out of cycle right now. However, Westpac could be preparing early for APRA's capital requirements of the average risk weight on Australian residential mortgage exposures to increase from 16% to at least 25% by July 2016.

"Total household bank deposits is at a record high of $737.3 billion, according to the latest APRA data analysed by finder.com.au. Westpac's household deposits is also sitting at its highest level, at almost $171 billion, as at August 2015”, she said.

Summary of Westpac changes

As at October 2015, Westpac has announced that the following changes will become effective for Westpac customers next month.

  • Owner occupier mortgage variable rates increased by 20 basis points to 5.68% per annum.
  • Residential investment property variable rates increased by 20 basis points to 5.95% per annum.
  • Westpac variable home loan customers that receive a Premier Advantage Package 0.7% per annum will move to 4.98% per annum for owner-occupiers and 5.25% for the residential investment property home loan.
  • No changes to fixed rate mortgages.

What does this mean for the rest of the industry?

With Westpac’s unexpected rate rise announcement, Michelle Hutchison says that further variable mortgage rate hikes could be on the horizon and that other lenders may imitate this move.

"The biggest concern is that Westpac's rate rise could open the floodgates for the other big banks and the rest of the home loan market to follow. So we're expecting to see more variable home loans rise in the coming months.

"Westpac holds 23% of the owner-occupied home loan market share out of all banks monitored by APRA, while the big four banks hold a combined 82%. They set the benchmark for the entire mortgage industry”, she said.

How will this impact me?

The average mortgage size in Australia is currently $371,200 so monthly repayments at 5.48% would be $2,102.98. With Westpac’s 0.2% variable rate increase, however, these monthly repayments will now be $2,149.74 which represents an additional monthly expense of $46.77 which is an extra $561.20 per annum.

The difference over the average life of a loan- 30 years- is a staggering $16,836.06.

Estimate how much a 0.2% variable rate rise could affect your mortgage repayments by using our monthly repayment calculator. Simply enter your details into the calculator and adjust the interest rate to account for future rate hikes to see how your repayments would change.

Alternatively, you can view the table below to see how a 0.2% rate increase would alter your mortgage repayments.

Extra cost per month for different home loan sizes

Home loan balance Current monthly repayments at 5.10% Monthly repayments at 5.30% Difference
$200,000 $1,085.90 $1,110.61 $24.71
$300,000 $1,628.85 $1,665.91 $37.06
$400,000 $2,171.80 $2,221.22 $49.42
$500,000 $2,714.75 $2,776.52 $61.77
$600,000 $3,257.70 $3,331.83 $74.13
$700,000 $3,800.65 $3,887.13 $86.48
$800,000 $4,343.60 $4,442.44 $98.84
$900,000 $4,886.55 $4,997.74 $111.19
$1,000,000 $5,429.50 $5,553.05 $123.55

Based on current average variable home loan rate of 5.1%

Thinking of refinancing your home loan?

You can compare a range of variable and fixed competitive home loans using the comparison table below.

ALSO READ: How much will it cost me to switch lenders?

Rates last updated August 14th, 2018
$
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.64%
3.66%
$0
$0 p.a.
80%
Competitive interest rate and limited fees
A simple mortgage with a competitive interest rate and no application or monthly fees. Borrow up to $2 million from a convenient online lender.
3.59%
3.59%
$0
$0 p.a.
80%
Special discounted interest rate
Enjoy flexible repayments, a redraw facility and the ability to split your loan. Plus, pay no application or ongoing fees.
3.69%
3.70%
$0
$0 p.a.
90%
Cut down on interest payments with a 100% offset account
Package your loan and get an interest rate discount and help from an HSBC relationship manager. Low fees help you save even more.
3.64%
3.65%
$0
$0 p.a.
80%
Get approved faster with a speedy online application
Low interest rate and limited fees. Add a 100% offset account for $10 a month.
3.69%
4.11%
$0
$395 p.a.
80%
Save on interest with a 100% offset account
Unlock a range of savings with this competitive package home loan offer. Offset account and redraw facility included.
3.49%
4.49%
$0
$395 p.a.
90%
Save on interest with a 100% offset account
Loans over $150k get a discount off an already low fixed rate. Available for NSW, QLD and ACT residents only.
3.64%
3.68%
$0
$0 p.a.
80%
A competitive interest rate for first home buyers that keeps fees low. You will need a 20% deposit and can borrow up to 500000.
3.71%
3.71%
$0
$0 p.a.
70%
A variable rate home loan that has a lot of flexible features. This loan has a 100% offset account.
3.68%
3.82%
$0
$10 monthly ($120 p.a.)
80%
Earn Velocity Frequent Flyer Points with this mortgage to spend on flights and more (subject to eligibility requirements). Redraw facility available on this variable rate home loan. Competitive interest rate.
3.75%
3.75%
$0
$0 p.a.
70%
This sharp rate product requires a 30% deposit
Pay no application or ongoing fees and get a flexible loan with the ability to split up to 6 times.
3.64%
3.78%
$0
$10 monthly ($120 p.a.)
80%
Earn thousands of Velocity Frequent Flyer Points on your mortgage (subject to eligibility requirements). Plus, access a 100% offset account to save on interest.
3.72%
4.10%
$0
$395 p.a.
80%
100% offset account plus package discounts
New borrowers or refinancers from another lender get a discounted rate with this package loan.
3.64%
3.79%
$0
$10 monthly ($120 p.a.)
70%
100% offset account and a competitive rate
Low rate, low fee loan for owner-occupiers. You will need a 30% deposit to get this mortgage.
3.64%
3.64%
$0
$0 p.a.
70%
A low interest rate home loan with no application or ongoing fees.
3.65%
3.66%
$0
$0 p.a.
80%
Sharp interest rate and low fees
This special rate mortgage has no ongoing fees and offers flexible repayments. Save $595 in establishment fees before 30 September.
3.70%
3.90%
$0
$0 p.a.
70%
Requires a 30% deposit
Enjoy all the benefits of the Basic Home Loan and take advantage of an offset account.
3.85%
3.85%
$0
$0 p.a.
80%
Flexible, low fee mortgage
Pay no application and ongoing fees with Macquarie Bank Basic Home Loan. Split and redraw facilities included.
3.65%
3.66%
$0
$0 p.a.
90%
Competitive interest rate and low fees. Available with a 10% deposit. Partial offset account attached (offset up to $15,000).
3.64%
3.64%
$0
$0 p.a.
70%
A basic variable home loan that offers a competitive interest rate with no application fees and no ongoing fees.
3.64%
3.79%
$0
$0 p.a.
80%
Apply online for this fixed rate, low-fee loan with redraw facilities and an optional offset account.
3.62%
3.62%
$0
$0 p.a.
95%
A low deposit mortgage with a competitive rate and plenty of flexibility. QLD residents only. Eligible borrowers can get a 15% discount on home and contents insurance for the life of their loan.
3.72%
3.74%
$0
$0 p.a.
80%
100% offset account and a 10% deposit option
Save on interest by taking advantage of a 100% offset account along with no ongoing fees or application fees.
3.70%
4.13%
$0
$395 p.a.
90%
Get this loan with a 10% deposit
Package your loan with an eligible credit card for discounts on rates and fees, and get a 100% offset account.
3.84%
3.82%
$0
$0 p.a.
80%
A fixed rate loan with free redraws, few ongoing fees. Apply online with a fast approval process.
3.89%
3.94%
$0
$0 p.a.
80%
Sharp fixed rate loan
Pay no application or ongoing fee and borrow up to 80% LVR.
3.84%
3.84%
$0
$0 p.a.
80%
Low fee online mortgage
Pay no application or ongoing fees and get access to a free redraw facility with this innovative online lender.
3.74%
3.74%
$0
$0 p.a.
80%
A basic owner-occupier home loan with a low variable rate that requires a 20% deposit.
3.59%
4.74%
$0
$395 p.a.
90%
Get this package loan with a 10% deposit
Enjoy a competitive rate with no application fee for this package loan.
3.79%
3.79%
$0
$0 p.a.
80%
Minimal fees and a 100% offset account
Access an offset account and pay no application or ongoing fees on this special variable rate for owner-occupiers.
3.88%
3.89%
$0
$0 p.a.
90%
Low deposit, low rate mortgage
Save on interest with a free 100% offset account and buy your property with just a 10% deposit.
3.74%
3.74%
$0
$0 p.a.
110%
Borrow up to 110% with a guarantor
Pay no deposit or LMI and get a discounted rate with this family pledge loan. Requires a family member to act as guarantor. NSW, Qld and ACT only.
3.76%
4.15%
$0
$395 p.a.
90%
Discount special offer with a 100% offset account
A high maximum LVR home loan with redraw facility and additional payments. Get this mortgage with a 10% deposit.
3.74%
3.79%
$600
$0 p.a.
80%
Low interest rate for new customers
Family guarantee option available. Enjoy flexible repayments and a low minimum loan amount.
3.81%
3.81%
$0
$0 p.a.
80%
A home loan with a competitive rate and plenty of handy features. This product comes with a 100% offset account.
3.64%
3.69%
$600
$0 p.a.
80%
Low fees and low interest rate
A competitive variable rate for borrowers with a 20% deposit or more. Guarantor option available.
4.04%
4.07%
$0
$0 p.a.
90%
Get this loan with a 10% deposit
For a limited time, pay no application or settlement fees. You can also take advantage of a free redraw facility.
3.97%
3.99%
$0
$0 p.a.
80%
Competitive investment package loan
Package your owner occupied loan with investment loan and receive a discounted investment rate. 100% offset account included.
3.72%
4.11%
$0
$349 p.a.
90%
10% deposit option available
Package your loan with other AMP products and save on rates and fees.
3.75%
4.00%
$0
$248 p.a.
70%
100% offset account included
Borrowers with a 30% deposit can get this competitive rate.
3.62%
4.49%
$0
$0 p.a.
80%
Get a competitive rate and avoid ongoing fees. This loan is only available to current and former employees of eligible Queensland government organisations.
4.09%
4.11%
$0
$0 p.a.
80%
Simple residential mortgage product
This variable rate loan keeps the features simple and fees low. This loan is offered by a 100% online lender.
3.89%
3.94%
$0
$0 p.a.
90%
Available with a 10% deposit
Borrow up to 90% of the value of the property you're buying, and pay no application fee.
3.68%
3.69%
$0
$0 p.a.
90%
Available with a 10% deposit
Get one free online redraw per month and pay no ongoing fees. Application fees are waived for loans above $150,000.
3.93%
3.94%
$0
$0 p.a.
80%
Use your home equity with a low rate
A low-fee line of credit loan from an online lender. Unlock the equity in your home and make interest-only repayments with a competitive rate.
3.99%
5.17%
$600
$0 p.a.
90%
Available with a 10% deposit
Competitive rates for fixed for 3 years with redraw facility.
3.99%
3.99%
$0
$0 p.a.
70%
Save on fees with this investor mortgage
Investors with a 30% deposit can get this low rate loan to fund their property portfolio.
4.13%
4.14%
$0
$0 p.a.
90%
Available with a 10% deposit
Access a fee-free offset account and a special interest rate for investors.
3.74%
3.74%
$0
$0 p.a.
90%
Special discount rate
New customers can get a discounted variable rate and a fee-free redraw facility. NSW, QLD and ACT residents only.
4.24%
4.27%
$0
$0 p.a.
95%
Low deposit loan for investors
Buy a home with just a 5% deposit and get flexible repayment options and a redraw facility.
3.59%
4.14%
$395
$0 p.a.
80%
Competitive interest rate
A one year fixed rate offer with no ongoing bank fees.
3.89%
4.94%
$595
$0 p.a.
90%
10% deposit option available
Borrow up to 90% of the value of the property you're buying and pay no application or ongoing fees.
3.74%
4.01%
$395
$0 p.a.
80%
Lock in a low rate for 3 years
A competitive fixed interest rate product with no ongoing bank fees.
4.18%
4.18%
$0
$0 p.a.
80%
Competitive investment mortgage
Investors get a 100% offset account and pay no application or ongoing fees on this loan from an innovative online lender.
3.99%
4.86%
$0
$0 p.a.
80%
Fix your rate for 2 years
Access a fee-free 100% offset account and pay no application or ongoing fees.
3.99%
4.62%
$395
$0 p.a.
80%
Flexible fixed investment loan
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
3.70%
3.70%
$0
$0 p.a.
70%
You need a 30% deposit to get this mortgage
Get a discount for keeping your LVR at 70% or below with this innovative online lender.
3.99%
3.99%
$0
$0 p.a.
80%
Special discounted interest rate
Get a discounted, low-fee investor loan from a convenient online lender. 20% deposit required.
3.69%
4.47%
$0
$395 p.a.
90%
10% deposit option available
A fixed rate loan with a 100% offset account and the option to make additional repayments. Loans over $150k receive a discounted rate. NSW, QLD and ACT residents only.
4.29%
4.26%
$0
$0 p.a.
95%
A competitive 3-year fixed rate loan with a high max insured LVR.

Compare up to 4 providers

Rates last updated August 14th, 2018
$
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.89%
3.94%
$0
$0 p.a.
80%
A sharp fixed rate mortgage for home buyers who want to make interest-only payments. Buy your own home and keep your repayments under control for 2 years.
3.59%
4.14%
$395
$0 p.a.
80%
A one year fixed rate offer with no ongoing bank fees.
3.49%
4.49%
$0
$395 p.a.
90%
Loans over $150k get a discount off an already low fixed rate. Available for NSW, QLD and ACT residents only.
3.89%
4.24%
$0
$0 p.a.
80%
Fix your rate and minimise repayments for 2 years with this interest-only investor mortgage.
3.64%
3.79%
$0
$0 p.a.
80%
Apply online for this fixed rate, low-fee loan with redraw facilities and an optional offset account.
3.99%
4.14%
$0
$0 p.a.
70%
Competitive investor mortgage for borrowers with a 30% deposit.
3.59%
4.74%
$0
$395 p.a.
90%
Enjoy a competitive rate with no application fee for this package loan.
3.74%
4.01%
$395
$0 p.a.
80%
An online home loan offer with a fixed interest offer for 3 years.
3.94%
3.92%
$0
$0 p.a.
80%
Lock in your interest rate for 2 years and enjoy flexibility, an optional offset account and a fast online application process.
3.84%
4.17%
$0
$395 p.a.
80%
Lock in a competitive rate for owner occupiers for two years. Extra repayments up to $30,000 over the life of the fixed period can be made.
3.94%
3.94%
$0
$0 p.a.
90%
Lock in a short interest loan term with a low interest rate.
3.99%
5.17%
$600
$0 p.a.
90%
Competitive rates for fixed for 3 years with redraw facility.
3.99%
4.62%
$395
$0 p.a.
80%
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
3.89%
3.94%
$0
$0 p.a.
90%
Borrow up to 90% of the value of the property you're buying, and pay no application fee.
3.69%
4.30%
$0
$0 p.a.
90%
A discounted 1 year fixed rate if your loan has an LVR under 80% and is more than $150k. NSW, QLD and ACT residents only.
3.69%
4.68%
$0
$395 p.a.
90%
Enjoy a discounted fixed rate and the ability to package the loan with other financial products.
3.69%
4.47%
$0
$395 p.a.
90%
A fixed rate loan with a 100% offset account and the option to make additional repayments. Loans over $150k receive a discounted rate. NSW, QLD and ACT residents only.
4.14%
3.96%
$0
$0 p.a.
80%
Investors can go from application to full approval in as little as 20 minutes with this innovative online lender.
3.99%
4.86%
$0
$0 p.a.
80%
Access a fee-free 100% offset account and pay no application or ongoing fees.
3.84%
4.47%
$0
$395 p.a.
90%
Enjoy discounts on banking products and insurance with this package loan. NSW, QLD and ACT residents only.
4.24%
4.00%
$0
$0 p.a.
80%
Buy an investment property and enjoy the certainty of a 3-year fixed rate with interest-only payments.
4.14%
4.81%
$0
$0 p.a.
80%
Pay no application fees and access a fee-free redraw facility with this fixed rate loan.
4.54%
4.60%
$0
$0 p.a.
90%
4.29%
4.26%
$0
$0 p.a.
95%
A competitive 3-year fixed rate loan with a high max insured LVR.
3.79%
5.04%
$595
$0 p.a.
90%
Investors can take advantage of a short term fixed rate with no application or ongoing fees.
3.79%
4.44%
$0
$0 p.a.
80%
Low fees and a reasonable fixed rate. This loan is only available to current and former employees of eligible Queensland government organisations.
4.04%
3.93%
$0
$0 p.a.
80%
Fix your rate for 1 year and make interest-only payments.
3.62%
4.49%
$0
$0 p.a.
80%
Get a competitive rate and avoid ongoing fees. This loan is only available to current and former employees of eligible Queensland government organisations.
4.33%
4.21%
$0
$0 p.a.
90%
4.36%
4.00%
$0
$0 p.a.
80%
This is a fixed rate loan for owner occupiers with few fees and a fast online approval process. Offset accounts are an optional extra.
4.49%
4.27%
$0
$0 p.a.
90%
Fixed rate loan with a 100% offset account and a 10% deposit option.

Compare up to 4 providers

How can I prepare for future variable mortgage rate rises?

As a savvy borrower, you can take the following precautionary steps to ensure that you’re prepared for a potential rate rise:

  • Research: Compare a range of home loan products from lenders and building societies to see what rates and promotions are on offer.
  • Consider refinancing: If you find a home loan that offers more competitive features or a more attractive rate, you may want to consider switching to another lender. Just ensure that you carefully weigh the costs of switching before initiating this kind of move.
  • Buffer of funds: As a contingency measure, it’s a good idea to ensure that you have a buffer of funds stored away, around 2-3% or an extra $400 of monthly repayments, to ensure that you can cope with any rate rise increases.
  • Speak to professionals: Speak to mortgage brokers and financial planners to ensure that you are sourcing the type of finance product that meets your borrowing needs as well as your personal budget. Try to project your cashflow and budget by accounting for potential rate hikes.

If you’re looking for peace of mind or greater certainty for your home loan repayments, you may want to consider fixing part or all of your home loan through a competitive fixed rate home loan, which you can compare in the table above.

To prepare for potential variable rate increases, Michelle Hutchison says that you should practice due diligence and conduct thorough research to ensure that you’re getting the most competitive deal.

“We’re clearly seeing banks respond to APRA’s crackdown, and expect to see further movement in the residential lending space so watch this space. For borrowers, it’s definitely the time to do your research when shopping around for a home loan to ensure you’re getting the best possible deal for your situation as competition looks set to get tighter”, she says.

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