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

Belinda Punshon 16 October 2015

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 balanceCurrent 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 September 20th, 2017
$
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%
A basic home loan with a competitive rate and low fees.
3.54%
3.54%
$440
$0 p.a.
80%
Borrow up to 80% LVR with no ongoing fees and a 100% offset account.
3.74%
3.74%
$0
$0 p.a.
80%
Combine a low variable interest rate and free redraw with no application or ongoing fees.
3.64%
3.66%
$0
$0 p.a.
80%
A home loan with a competitive variable rate, limited fees and plenty of flexibility.
3.69%
3.72%
$0
$0 p.a.
80%
A low rate home loan with no ongoing fees.
3.49%
4.47%
$0
$375 p.a.
90%
Discount off an already competitive interest rate for loans over $150k. NSW, QLD and ACT residents only.
3.72%
3.74%
$0
$0 p.a.
80%
Take advantage of a 100% offset account along with no annual or application fees.
3.79%
3.84%
$445
$0 p.a.
90%
A special limited time offer for owner occupiers. An IMB Transaction Account must be opened with this loan.
3.79%
3.92%
$0
$10 monthly ($120 p.a.)
80%
A competitive variable rate home loan with flexible features. You can earn 30,000 Velocity Points for every $100k you borrow (for a limited time, subject to eligibility requirements).
3.86%
3.87%
$0
$0 p.a.
80%
Pay no ongoing fees on a competitive variable rate home loan.
3.69%
4.86%
$0
$395 p.a.
90%
A special rate for first home buyers buying residential property and borrowing over $150K. 350K NAB Rewards Points offer available. Terms and conditions apply.
3.69%
4.15%
$395
$0 p.a.
80%
A one year fixed rate offer with no ongoing bank fees.
3.84%
3.84%
$0
$0 p.a.
110%
Requires a family member to act as guarantor. Discounted rate available with family pledge loans. Family pledge loans require no LMI and no deposit. NSW, Qld and ACT only.
3.79%
4.00%
$0
$10 monthly ($120 p.a.)
90%
Get a competitive interest rate for 3 years and a discounted variable rate when the fixed period ends.
3.74%
4.06%
$0
$299 p.a.
95%
A loan with no application fee and borrow up to 95% LVR.
3.97%
4.02%
$445
$0 p.a.
90%
Get a competitive rate without features you may not use.
3.84%
3.84%
$0
$0 p.a.
90%
A competitive variable rate with a redraw facility. NSW, QLD and ACT residents only.
3.68%
3.69%
$0
$0 p.a.
80%
A competitive variable rate product with low fees offered by a 100% online lender.
3.74%
3.75%
$0
$0 p.a.
70%
A special variable rate home loan with no application or ongoing fees.
3.74%
3.75%
$0
$0 p.a.
90%
A competitive variable rate home loan with no application fee.
3.85%
4.10%
$500
$0 p.a.
95%
Apply for Easy Street fixed rate home loans and get a competitive loan with a fixed interest rate.
3.69%
3.75%
$600
$0 p.a.
80%
A low interest rate variable home loan with no ongoing fees.
3.97%
3.99%
$0
$0 p.a.
90%
A low rate variable home loan offer with no monthly fees or application fee charge.
3.74%
4.81%
$0
$0 p.a.
95%
Get a competitive 2-year fixed rate with no application or ongoing fees.
3.72%
4.19%
$0
$0 p.a.
80%
Enjoy a variable 3 year introductory rate with the Bankwest Equaliser Home Loan.
3.88%
4.89%
$0
$395 p.a.
95%
A fixed rate package with flexible repayment options. 350K NAB Rewards Points offer available. Terms and conditions apply.
3.96%
3.98%
$0
$0 p.a.
90%
Take advantage of a redraw facility, competitive variable rate and no application or settlement fees for a limited time.
4.09%
4.12%
$0
$0 p.a.
80%
Access the equity in your home with a competitive interest rate and no application fee.
3.69%
4.45%
$0
$375 p.a.
90%
Discount off an already competitive 2 year fixed rate for loans over $150k. NSW,QLD and ACT residents only.
3.97%
3.97%
$0
$0 p.a.
80%
A competitive variable rate home loan with no ongoing fees.
3.83%
3.83%
$0
$0 p.a.
70%
A special low variable rate for owner occupiers with 100% offset account and no application or ongoing fees.
3.64%
3.64%
$0
$0 p.a.
70%
A basic low-rate home loan that still offers some useful features.
3.95%
3.95%
$0
$0 p.a.
95%
A low rate home loan with no application or ongoing fees. Note that to be eligible for this loan you must be QLD resident.
3.74%
4.85%
$0
$0 p.a.
95%
Enjoy a low interest rate and borrow up to 95% (with LMI) of your property's value.
4.19%
4.19%
$0
$0 p.a.
90%
Access to redraw facility and offset account without the annual fee.
3.64%
4.83%
$0
$0 p.a.
95%
Owner-occupiers can lock in a competitive rate with no ongoing fees. Conditions apply.
4.03%
4.07%
$0
$0 p.a.
95%
Enjoy a basic home loan with a high LVR and no application or ongoing fees.
3.99%
4.98%
$0
$395 p.a.
95%
A discounted package rate for owner occupiers with the ability to package a Qantas rewards earning Amplify credit card. $1,500 cashback available for refinancers. Conditions apply.
3.99%
4.99%
$0
$395 p.a.
95%
A package home loan with fee free extra repayments available during the fixed term.
4.39%
5.42%
$300
$10 monthly ($120 p.a.)
95%
Lock in a competitive fixed rate for 3 years.
3.69%
4.03%
$0
$299 p.a.
80%
Enjoy a low variable rate with no application fee.
3.88%
4.47%
$0
$0 p.a.
95%
This competitive introductory rate is a limited time offer for new owner-occupiers
3.68%
3.69%
$600
$0 p.a.
90%
Get a low variable rate along with some important basic features.
3.80%
3.81%
$0
$0 p.a.
95%
A no frills loan with a competitive rate and a maximum LVR of 95%.

Have we missed anything in the comparison table? Tell us

Compare up to 4 providers

Rates last updated September 20th, 2017
$
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
3.49%
4.47%
$0
$375 p.a.
90%
Discount off an already competitive interest rate for loans over $150k. NSW, QLD and ACT residents only.
3.64%
4.83%
$0
$0 p.a.
95%
Owner-occupiers can lock in a competitive rate with no ongoing fees. Conditions apply.
3.69%
4.15%
$395
$0 p.a.
80%
A one year fixed rate offer with no ongoing bank fees.
3.69%
4.86%
$0
$395 p.a.
90%
A special rate for first home buyers buying residential property and borrowing over $150K. 350K NAB Rewards Points offer available. Terms and conditions apply.
3.74%
4.81%
$0
$0 p.a.
95%
Get a competitive 2-year fixed rate with no application or ongoing fees.
3.99%
4.08%
$395
$0 p.a.
80%
An online home loan offer with a fixed interest offer for 3 years.
3.85%
4.10%
$500
$0 p.a.
95%
Apply for Easy Street fixed rate home loans and get a competitive loan with a fixed interest rate.
3.72%
4.41%
$0
$395 p.a.
95%
A fixed rate package loan with a competitive rate and a split loan facility. Note that to be eligible for this loan you must be QLD resident.
3.79%
4.00%
$0
$10 monthly ($120 p.a.)
90%
Get a competitive interest rate for 3 years and a discounted variable rate when the fixed period ends.
3.69%
4.45%
$0
$375 p.a.
90%
Discount off an already competitive 2 year fixed rate for loans over $150k. NSW,QLD and ACT residents only.
3.69%
4.73%
$0
$0 p.a.
95%
A limited time fixed rate home loan with extra repayment abilities. Conditions apply.
3.74%
4.42%
$0
$375 p.a.
90%
Enjoy discounts on banking products and insurance with this package loan. NSW, QLD and ACT residents only.
3.88%
4.89%
$0
$395 p.a.
95%
A fixed rate package with flexible repayment options. 350K NAB Rewards Points offer available. Terms and conditions apply.
4.14%
4.77%
$0
$0 p.a.
95%
A 4-year fixed rate home loan with no annual or application fees.
3.99%
4.77%
$0
$0 p.a.
95%
A competitive 3 year fixed rate with a redraw facility and split loan options, plus no application fee.
3.94%
3.71%
$0
$0 p.a.
80%
Apply online for this fixed rate, low-fee loan with redraw facilities and an optional offset account.
4.59%
5.01%
$0
$395 p.a.
95%
A competitive loan with flexible features. 350K NAB Rewards Points offer available. Terms and conditions apply.
3.99%
3.84%
$0
$0 p.a.
80%
A two year fixed rate home loan with no annual or application fees.
3.88%
4.94%
$0
$395 p.a.
95%
This 2 year fixed ANZ Breakfree Package rate comes with package discount and product bundle. Terms and conditions, package fee and fees, charges & eligibility criteria apply.
3.99%
4.99%
$0
$395 p.a.
95%
A package home loan with fee free extra repayments available during the fixed term.
4.03%
5.04%
$600
$10 monthly ($120 p.a.)
95%
Get a 2-year fixed rate with flexible repayment options to help you save.
3.99%
4.98%
$0
$395 p.a.
95%
A discounted package rate for owner occupiers with the ability to package a Qantas rewards earning Amplify credit card. $1,500 cashback available for refinancers. Conditions apply.
3.99%
5.03%
$0
$8 monthly ($96 p.a.)
95%
Enjoy a 2-year fixed rate with interest-only options and a partial offset account.
4.09%
4.98%
$0
$395 p.a.
90%
Lock your rate in for 3 years and enjoy a discount on your loan of $150,000 -$249,000.
3.99%
4.90%
$0
$395 p.a.
95%
Lock in a discounted fixed rate with a low service fee.

Have we missed anything in the comparison table? Tell us

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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