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 January 21st, 2019
$
Loan purpose
Offset account
Loan type
Repayment 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
3.59%
3.61%
$0
$0 p.a.
90%
Get a low interest rate loan with no ongoing fees. Plus you can make extra repayments and free redraw online. Available with just a 10% deposit.
3.59%
3.59%
$0
$0 p.a.
80%
Enjoy flexible repayments, a redraw facility and the ability to split your loan. Plus, pay no application or ongoing fees.
3.69%
3.72%
$445
$0 p.a.
90%
NSW and ACT customers only. Get a special discount for a limited time when you open an IMB Transaction Account.
3.54%
3.58%
$0
$0 p.a.
80%
Get a competitive rate, save on fees and access a 100% offset account plus redraw facility. $900 cashback offer.
3.64%
3.66%
$0
$0 p.a.
80%
A simple mortgage with a competitive interest rate and no application or monthly fees. Borrow up to $2000000 from a convenient online lender.
3.59%
3.63%
$0
$0 p.a.
90%
Get a low variable interest rate and buy a property with just a 10% deposit. 100% offset account attached.
3.49%
3.53%
$250
$0 p.a.
80%
A very low variable interest rate for borrowers with a 20% deposit. Add a 100% offset account for $10 a month.
3.49%
4.57%
$0
$395 p.a.
90%
Loans over $150000 get a discount off an already low fixed rate. Available for NSW, QLD and ACT residents only.
3.64%
3.64%
$0
$0 p.a.
70%
A low interest rate home loan with no application or ongoing fees.
3.75%
3.75%
$0
$0 p.a.
70%
A simple mortgage with no application or ongoing fees that has extra repayments plus split and redraw options. Requires a 30% deposit.
3.74%
4.49%
$445
$6 monthly ($72 p.a.)
90%
NSW and ACT customers only. 3 years fixed interest terms and free access to redraw facility online.
3.73%
3.87%
$0
$10 monthly ($120 p.a.)
80%
Earn Velocity Frequent Flyer Points with this mortgage to spend on flights and more (for a limited time, subject to eligibility requirements). Redraw facility available on this variable rate home loan. Competitive interest rate.
3.79%
3.79%
$0
$0 p.a.
80%
Access an offset account and pay no application or ongoing fees on this special variable rate for owner-occupiers.
3.80%
4.05%
$0
$0 p.a.
70%
Earn tens of thousands of Qantas Points to spend on flights, hotels and more with this variable owner occupier mortgage. Competitive variable rate mortgage that requires a 30% deposit.
3.74%
4.13%
$0
$349 p.a.
90%
Get a sharp rate plus package discounts and a 100% offset account.
3.84%
3.84%
$0
$0 p.a.
80%
Pay no application or ongoing fees and get access to a free redraw facility with this innovative online lender.
3.85%
3.85%
$0
$0 p.a.
80%
Low fee loan with extra repayments. Pay no application and ongoing fees and take advantage of split and redraw options.
3.67%
3.72%
$600
$0 p.a.
80%
Family guarantee option available. Enjoy flexible repayments and a low minimum loan amount.
3.68%
3.70%
$0
$0 p.a.
80%
A competitive variable rate mortgage for owner occupiers that comes with a no fee debit card with a $5,000 limit.
3.72%
3.72%
$0
$0 p.a.
110%
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.
3.79%
4.22%
$0
$395 p.a.
80%
Unlock a range of savings with this competitive package home loan offer. Offset account and redraw facility included.
3.69%
3.83%
$0
$10 monthly ($120 p.a.)
80%
Earn Velocity Frequent Flyer Points on your mortgage (subject to eligibility requirements). Plus, access a 100% offset account to save on interest.
3.72%
3.74%
$0
$0 p.a.
80%
Save on interest by taking advantage of a 100% offset account along with no ongoing fees or application fees.
3.83%
4.89%
$0
$395 p.a.
80%
A flexible 3 year fixed rate loan you can use to buy your own home.
3.82%
3.93%
$0
$10 monthly ($120 p.a.)
90%
Get Velocity Frequent Flyer Points at settlement, monthly and every three years, plus the option to make up to $10,000 a year in extra repayments.
3.59%
3.58%
$0
$0 p.a.
80%
Apply online and get fast approval for this fixed rate, low-fee loan with redraw facilities. Add a 100% offset account for a small fee.
3.85%
4.69%
$0
$0 p.a.
90%
A package home loan with a sharp fixed rate and a 10% deposit option for low deposit borrowers.
3.70%
3.90%
$0
$0 p.a.
70%
Enjoy all the benefits of the Basic Home Loan and take advantage of an offset account.
3.89%
4.27%
$0
$395 p.a.
80%
New borrowers or refinancers can get a discounted rate with this package loan.
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.
3.84%
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%
Pay no application or ongoing fee and borrow up to 80% LVR.
3.75%
4.00%
$0
$248 p.a.
70%
Borrowers with a 30% deposit can get this competitive rate. Cut down on interest costs with a 100% offset account.
3.69%
4.75%
$0
$395 p.a.
90%
Enjoy a competitive rate with no application fee for this package loan.
4.04%
4.07%
$0
$0 p.a.
90%
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%
Package your owner occupied loan with investment loan and receive a discounted investment rate. 100% offset account included.
3.89%
3.91%
$0
$0 p.a.
80%
This variable rate loan keeps the features simple and fees low. This loan is offered by a 100% online lender.
3.94%
3.94%
$0
$0 p.a.
70%
Investors with a 30% deposit can get this low rate loan to fund their property portfolio. Take advantage of split and redraw facilities.
3.99%
3.95%
$0
$0 p.a.
90%
Borrow up to 90% of the value of the property you're buying, and pay no application fee.
4.18%
4.18%
$0
$0 p.a.
80%
Investors get a 100% offset account and pay no application or ongoing fees on this loan from an innovative online lender.
3.72%
3.72%
$0
$0 p.a.
90%
New customers can get a discounted variable rate and a fee-free redraw facility. NSW, QLD and ACT residents only.
3.69%
4.08%
$0
$349 p.a.
90%
Package your loan with other AMP products and save on rates and fees.
3.94%
4.95%
$595
$0 p.a.
95%
Borrow up to 95% LVR of the value of the property you're buying and pay no application or ongoing fees.
3.99%
3.99%
$0
$0 p.a.
80%
Get a discounted, low-fee investor loan from a convenient online lender. 20% deposit required.
3.70%
3.70%
$0
$0 p.a.
70%
Get a discount for keeping your LVR at $70% or below 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.
3.99%
4.62%
$395
$0 p.a.
80%
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
3.74%
4.55%
$0
$395 p.a.
90%
A fixed rate loan with a 100% offset account and the option to make additional repayments. Loans over $150000 receive a discounted rate. NSW, QLD and ACT residents only.
3.87%
3.91%
$600
$0 p.a.
95%
A home loan with no ongoing fee and a redraw facility that you can borrow up to 95% LVR.
4.29%
4.26%
$0
$0 p.a.
95%
A competitive 3-year fixed rate loan with a high max insured LVR.
3.69%
4.86%
$0
$395 p.a.
90%
Special discounted rate for first home buyers. Start your home buying journey with 2 years of fixed repayments at a competitive rate plus package discounts. Available with a 10% deposit.

Compare up to 4 providers

Rates last updated January 21st, 2019
$
Loan purpose
Offset account
Loan type
Repayment 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
3.74%
4.49%
$445
$6 monthly ($72 p.a.)
90%
NSW and ACT customers only. 3 years fixed interest terms and free access to redraw facility online.
3.74%
4.01%
$395
$0 p.a.
80%
An online home loan offer with a fixed interest offer for 3 years.
3.84%
4.66%
$0
$395 p.a.
90%
A two year fixed rate home loan with application fees.
3.49%
4.57%
$0
$395 p.a.
90%
Loans over $150000 get a discount off an already low fixed rate. Available for NSW, QLD and ACT residents only.
3.89%
3.94%
$0
$0 p.a.
90%
Pay no application or ongoing fee and borrow up to 90% LVR.
3.69%
4.75%
$0
$395 p.a.
90%
Enjoy a competitive rate with no application fee for this package loan.
3.83%
3.67%
$250
$0 p.a.
80%
A low 3 year fixed rate for home buyers. Add a 100% offset account with a $10 monthly fee.
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.
3.82%
3.93%
$0
$10 monthly ($120 p.a.)
90%
Get Velocity Frequent Flyer Points at settlement, monthly and every three years, plus the option to make up to $10,000 a year in extra repayments.
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.
3.83%
4.89%
$0
$395 p.a.
80%
A flexible 3 year fixed rate loan you can use to buy your own home.
3.74%
4.69%
$0
$395 p.a.
90%
Enjoy a discounted fixed rate and the ability to package the loan with other financial products.
3.96%
3.88%
$0
$0 p.a.
80%
Lock in a 3 year fixed rate with no upfront or ongoing fees.
3.59%
3.58%
$0
$0 p.a.
80%
Apply online and get fast approval for this fixed rate, low-fee loan with redraw facilities. Add a 100% offset account for a small fee.
3.75%
4.72%
$0
$299 p.a.
95%
Owner-occupiers can enjoy a discounted fixed rate, a rate lock feature and the ability to make additional repayments.
4.09%
3.89%
$0
$248 p.a.
80%
Fixed rate home buyer product with very low fees.
3.64%
3.59%
$0
$0 p.a.
80%
Fast, 100% online application process. Very limited fees. Optional offset account (with fee).
3.85%
4.69%
$0
$0 p.a.
90%
A package home loan with a sharp fixed rate and a 10% deposit option for low deposit borrowers.
3.59%
4.14%
$395
$0 p.a.
80%
A one year fixed rate offer with no ongoing bank fees.
3.99%
4.86%
$0
$395 p.a.
95%
Unlock discounts on interest rates and other products with the Choice Package loan. Available with a 5% deposit.
3.89%
4.24%
$0
$0 p.a.
80%
Fix your rate and minimise repayments for 2 years with this interest-only investor mortgage.
4.08%
3.87%
$0
$248 p.a.
80%
Borrow up to 80% LVR with no application fee and ongoing fees.
3.86%
3.86%
$0
$0 p.a.
95%
A two year fixed rate home loan with no annual or application fees.
3.79%
4.87%
$0
$395 p.a.
95%
Low deposit home loan. Enjoy flexible repayment options while paying limited fees.
3.89%
3.91%
$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.
3.94%
3.94%
$0
$0 p.a.
90%
Lock in a short interest loan term with a low interest rate.
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%
3.91%
$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.
3.49%
4.36%
$0
$0 p.a.
90%
A discounted 1 year fixed rate for home buyers that's available with a 10% deposit. NSW, QLD and ACT residents only.
3.99%
3.95%
$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%
4.86%
$0
$395 p.a.
90%
Special discounted rate for first home buyers. Start your home buying journey with 2 years of fixed repayments at a competitive rate plus package discounts. Available with a 10% deposit.
3.74%
4.55%
$0
$395 p.a.
90%
A fixed rate loan with a 100% offset account and the option to make additional repayments. Loans over $150000 receive a discounted rate. NSW, QLD and ACT residents only.
3.99%
3.94%
$0
$0 p.a.
80%
Buy an investment property and enjoy the certainty of a 3-year fixed rate with interest-only payments.
3.74%
4.50%
$0
$395 p.a.
90%
Enjoy discounts on banking products and insurance with this package loan. 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.
4.33%
4.21%
$0
$0 p.a.
90%
Lock in your interest rate for two years and enjoy package discounts.
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.
4.04%
3.93%
$0
$0 p.a.
80%
Fix your rate for 1 year and make interest-only payments.
3.89%
5.05%
$595
$0 p.a.
90%
Investors can take advantage of a short term fixed rate with no application or ongoing fees.
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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