Half of Australia’s lenders are raising their variable home loan rates despite the official cash rate remaining unchanged since July, according to new market data.
The Reserve Bank of Australia (RBA) decided to keep the official cash rate at 4.1 percent in October, putting it on hold for four consecutive months.
The central bank said inflation had passed its peak but was still too high and thus needed to be contained.
This also marks the first interest rate decision the newly appointed RBA Governor Michele Bullock has made since she assumed the position in September.
While the RBA’s announcement is good news for many borrowers, data from the financial comparison website Canstar has revealed that 48 percent of financial institutions lifted their variable rates by an average of 0.15 percent in the past four months.
Meanwhile, borrowers on fixed-rate home loans have not been in a better position, as 81 percent of lenders have raised their fixed rates by an average of 0.27 percent during the period.
Ms. Zahos also noted that while the RBA had paused its interest rate hiking cycle in October to observe the economic situation, there were risks of further tightening in the coming period.
“The RBA is buying in time, and the new governor would like to see the core inflation figures, the labour numbers, [and] what’s happening with China,” she said.
“There are so many variables here that they’re looking at.”
Refinancing Advice
Amid the current high-interest rate situation, financial experts have advised borrowers to look for better mortgage deals.However, RateCity said there were still many lenders offering variable rates as low as 5.75 percent, or even 5.50 percent.
It is estimated that a borrower with a $500,000 (US$319,000) home loan would save $344 in monthly repayment if they manage to refinance to a competitive rate of 5.75 percent.
This would equate to nearly $10,000 in savings for the next two years.
“There are still 32 lenders offering at least one variable rate under 5.75 percent, and while many of them are for ‘ideal’ borrowers, if you live in the home you own and have been paying down your debt for a few years, that’s likely to be you.”
Nevertheless, Ms. Zahos said borrowers needed to pay attention to serviceability buffers when applying for home loan refinancing to avoid having their applications rejected.
At present, banks are required to maintain a buffer rate of three percent to ensure that borrowers can service their loans if interest rates increase.
“If you see a rate advertised at 6 percent, the bank needs to assess it as if it was nine to make sure you can service that because your rates do move,” she said.
However, Ms. Zahos noted that a few lenders had changed the above requirement and applied some common sense when a borrower applied to refinance their loans.
In addition, while the financial expert said there was no problem for borrowers to seek assistance from mortgage brokers, she advised consumers to do their research first.
“Do your research, get some help, and then question … Knowledge is power. And that’s why I suggest consumers do their research first,” Ms. Zahos said.
