March 29, 2017
Experts have been predicting interest rates on mortgages to creep up gradually through 2017 since the end of last year. As you may have expected, this is just what is happening. Some of the major banks are making another move before the first quarter ends. Westpac has just announced that it will increase mortgage interest rates for both investor and owner-occupier loans. This follows the announcement by National Australia Bank last week.
On one hand, Westpac’s increase is in response to NAB’s recent announcement to increase their investor loans by 25 basis points. They are raising rates on their owner-occupier home loans as well, although not by as much. Generally, when one major bank makes a significant change, the others do the same. With Westpac joining NAB, it’s likely that ANZ and Commonwealth, the other two major lenders, will follow suit.
The fundamental reasons, however, are the continually increasing costs of funding for lenders, as well as regulatory expectations to cap growth on investor loans.
Westpac consumer bank chief executive, George Frazis, explains, ”Despite home loan interest rates being at historically low levels, both deposits and wholesale funding of mortgages have increased over the last nine months.” Frazis also notes that the bank has made an effort to keep its rates at competitive levels, making the needs of its customers a priority.
Factors such as increasing Australian bond rates, a rise in global rates, and inflation make funding more expensive for the banks.
Wespac has raised rates for both investors and owner-occupiers, with investors seeing the largest interest rate increases 28 basis points for investor interest-only loans. This pushes rates up to 5.96 percent per annum.
The increases for owner-occupiers are much less significant. Also, to encourage homebuyers to pay down their loans faster, the bank is offering smaller increases for principal and interest loans. For owner-occupiers paying off a principal and interest home loan, the rate only went up by three basis points, putting the rate at 5.32 percent.
Should you change to a principal and interest loan to avoid the higher increase? Westpac, in an effort to accommodate homeowners and to make the transition to a paying a higher interest rate easier, is allowing all customers who want to refinance the ability to do so without having to pay any fees. This offer will last until 17 June 2017.
With a difference of .17 percent between the interest-only and principal and interest rates, switching can lead to huge savings over the term of your mortgage. Also, paying down more of your principal sooner will help you to pay off your entire loan faster.
As many experts have warned that interest rates have already bottomed out, keep in mind that they are not likely to go back down anytime soon. In fact, other lenders may increase their rates as well and there may be continued, gradual increases all around throughout the year as lenders have to adjust to changes in market rates. If you want to refinance to a fixed home loan to lock in your mortgage repayments for a set term, or to try to get a lower rate, it may be a good time to do so now before other lenders increase their interest rates as well.
Written by Refinancing.com.au
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