From March 24, NAB will raise its standard variable rate for owner occupiers by 7 basis points to 5.32% p.a., while their variable rate for residential investment loans will increase by 25 basis points to 5.90% p.a..**
NAB’s Line of Credit products will also increase by 25 basis points.
According to NAB, the change means customers with a standard variable rate, 30-year, $300,000 home loan will have to pay an extra $13/month on their principal and interest repayments.
The announcement comes not long after the US Federal Reserve decided to raise US interest rates by 25 basis points for the second time in three months.
Earlier today, Gateway Credit Union CEO Paul Thomas warned that the move by the US Federal Reserve would have “knock-on effects for Australian mortgage holders”.
“While US interest rates may seem inconsequential to Australian borrowers, they will not escape unscathed,” Thomas said.
“The bond markets that determine global rates generally follow the US Fed, and with Australian banks getting around 40 per cent of their funding from overseas, Aussie borrowers should brace themselves for interest rate increases, too.”
— 9Finance (@9Finance) March 16, 2017
Canstar Group Manager of Research and Ratings Mitch Watson said unfortunately the market will probably start to see more rate movements like what NAB has just announced.
“There is a growing disconnect between the official cash rate and the interest rate charged by lenders,” Watson said.
A “difficult” decision – NAB CEO
NAB Chief Operating Officer Antony Cahill said the decisions around interest rates are “difficult ones” and assured customers they aren’t taken lightly.
“The difference between what we charge and how much it costs us to fund a mortgage remains under pressure, with intense competition, increasing regulation, and elevated funding costs,” Cahill said.
“By making a series of changes, both up and down, we are seeking to balance these across our entire mortgage portfolio.”
Mr Cahill added that around 85% of NAB customers pay less than NAB’s current standard variable rate, through a range of discounts available on home loan products.
“We understand these changes will affect customers in different ways, and we always encourage customers to have a conversation with their banker or broker about what home loan suits them best.”
NAB introduces “lowest rate ever”
On a more positive note, NAB has introduced their lowest ever rate on a “special” 2-year fixed package loan for first home buyers.
Offered from March 16, this product will charge a NAB record low interest rate of 3.69% p.a. (4.86% p.a. comparison rate*) for eligible customers .
On Canstar’s database, this rate is 0.1% off the lowest rate in the market and 0.43% lower than the market average.
NAB’s current 2-year fixed package home loan charges 3.98% p.a. (4.92% p.a. comparison rate*).
Cahill said the new offer will help Australian first home buyers “achieve their home ownership dreams”.
“Every dollar counts when you’re buying your first home, and this offer for first home buyers will provide real support to Australians wanting to enter the property market,” Cahill said.
|Big Four Banks – 2-Year Fixed Package Home Loan Comparison|
|ANZ||Breakfree Residential Fixed 2 yrs 150k+||3.98%||4.66%*|
|Commonwealth Bank||Wealth Package Residential Fixed 2 yrs 150k+||3.99%||5.00%*|
|NAB||Choice Package Standard Fixed 2 yrs 150k+||3.98%||4.92%*|
|Westpac||Premier Advantage Fixed Options 2 yrs 150k+||3.99%||4.94%*|
Data as at 16 March 2017. Loans must be available for Principal & Interest repayments.
*Comparison rate based on $150,000 over 25 years.
Time to fix?
Gateway Credit Union’s Paul Thomas warned that the era of Australia’s low domestic rates will soon be coming to an end and urged borrowers to consider fixed rate home loans.
“Although borrowers have been enjoying a low rate environment for some time, they need to take heed and make sure they will be able to sustain their loans when rates begin to rise again,” Thomas said.
“For those who are concerned about rate hikes, a fixed rate home loan is the best option to offer some security.
“Time is of the essence, so take advantage by locking in these low rates before they start to shift upward.”
Mr Thomas added that Gateway Credit Union has seen strong demand for their 5-year fixed home loans in particular, suggesting that borrowers are feeling “vulnerable and exposed”.
Canstar’s Mitch Watson said fixed home loans should form part of people’s consideration at the moment, with average 1, 2 and 3 year fixed rates lower than the average standard variable rates on Canstar’s database.
In his ‘Money Minute’ segment on The Today Show this morning, finance commentator Ross Greenwood said people need to prepare for the possibility that “there are not more rate cuts ahead”.
When asked about fixed interest home loans, Greenwood said “there are some very good fixed rate deals out there” and that if borrowers think rates are going to keep rising, “you’d be going as long as you possibly could”.
— 9Finance (@9Finance) March 15, 2017
If you are considering refinancing, or are in the market for a new home loan, we have provided a comparison table below which features the current low rate home loans available for a 80% LVR with links direct to the providers websites. Please note that this table has been formulated based on a loan of $600,000 for properties in NSW.
*Read the comparison rate warning.
**NAB has not provided comparison rates for these products.
Canstar is an information provider and in giving you product information Canstar is not making any suggestion or recommendation about a particular product. If you decide to apply for a home loan, you will deal directly with a financial institution not with Canstar. Rates and product information should be confirmed with the relevant financial institution. Home Loans in the table include only products that are available for somebody borrowing 80% of the total loan amount. For product information, read our detailed disclosure, important notes and additional information. Read the comparison rate warning. The results do not include all providers and may not compare all the features available to you. Canstar may earn a fee for referral of leads from the comparison table. See how we get paid.
The Star Ratings in this table were awarded as per our most recent rating. View the Canstar Home Loan Star Rating Methodology. The Star Rating shown is only one factor to take into account when considering a product.
Featured image by Nills Versemann | iStock