Struggling borrowers forced to dig deep as gruelling cash rate hike takes effect
Australian borrowers are bracing for mortgage pain as three of the big banks enforce the Reserve Bank's latest interest rate hike today.
The RBA's monetary policy board unanimously decided to raise the cash rate by 25 basis points, up to 3.85 per cent, at its first meeting of the year on February 3, in a move widely expected by economists.
CBA, NAB and ANZ officially shifted their variable rates for home loan customers today after confirming they would pass on the hike in full.
A pedestrian moves past a National Australia Bank Ltd. (NAB) central business district branch on February 18, 2025 in Sydney, Australia. The Reserve Bank of Australia (RBA) is set to announce its monetary policy decision on February 18, 2025, with many experts predicting a rate cut due to easing inflation and economic conditions. This anticipated cut aims to provide relief to mortgage holders and stimulate economic activity amid concerns about weak household con Getty
Westpac variable mortgage customers will see their rates increase on Tuesday.
While the majority of borrowers saw their rate rise this morning, lenders are required to give those paying minimum monthly repayments more time to gather the extra cash.
Lenders must send customers a letter before adjusting their repayment and give them time to prepare for this higher amount.
After sending out letters to customers, Westpac, NAB and ANZ must give at least 30 days' notice before enforcing the new rate.
CBA must provide a minimum of 20 days' notice.
The hike will add around $100 to an average mortgage holder's monthly repayments, although many borrowers have a buffer built up thanks to last year's three cuts.
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Following the changes Westpac is set to offer the lowest advertised variable rate out of the major banks at 5.49 per cent.
CBA's rates will today jump from 5.34 per cent to 5.59 per cent, the second most affordable option.
NAB will have the highest rate at 5.94 per cent, while ANZ is set to offer 5.75 per cent from today.
More broadly, the new average owner-occupier variable rate is estimated at 5.77 per cent, according to Canstar.
More than 40 lenders are tipped to offer a lower rate of 5.50 per cent on the same loan, while the new lowest variable rate is likely to be 5.25 pr cent once all the RBA hikes are made.
Canstar Data Insights Director Sally Tindall urged borrowers to "be proactive" and request a rate review following the cash rate increase.
"For an owner-occupier who's paying down their debt, a competitive rate is now around 5.50 per cent, but, once the dust settles, we expect the market leader to sit closer to 5.25 per cent," she said.
"If you're sitting on a rate starting with a 6, there's no sugar coating it: you're paying a loyalty tax."
In addition to the variable hikes this morning, ANZ has increased fixed rates by up to 0.40 on its owner-occupier principal and interest rates, to 5.89 per cent for a one-year term.
READ MORE: The RBA has hiked interest rates. So what does that mean for your mortgage?
Generic. Australian, money, currency, dollar, dollars, $100, $50, fifty, hundred, spending, payment, mortgage, loan, lending. January 3, 2019. Photo: Dominic Lorrimer Dominic Lorrimer
That means Westpac now offers the lowest fixed rate out of the majors at 5.49 per cent for a one-year term, followed by 5.74 per cent from NAB under the same conditions.
CBA offers a minimum fixed rate of 5.94 per cent for a one-year term.
No lenders are offering under five per cent.
The lowest fixed rate is 5.09 per cent, according to Canstar, while seven lenders are offering fixed rates under 5.25 per cent.
Despite rates increasing on the whole, banks can still negotiate on an individual basis, Tindall said.
"If you haven't asked for a rate review in the last six months, pick up the phone or fire off a request from your banking app asking for one."
She also advised mortgage holders to resist the temptation to extend their loan terms or switch to interest-only payments in the wake of the hike.
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Stressed mortgage holders are taking drastic measures to reduce their monthly repayments but it could be adding hundreds of thousands of dollars to their debts. 9News
Switching to an interest-only loan for two years would decrease monthly minimum repayments for a $600,000 debt by $576, but would cost an extra $27,982 in the long-term, Canstar data shows.
For someone with the same debt, extending a 25-year loan term by five years would cost more than $134,000 over the life of the loan, despite minimum repayments dropping by $274 a month.
"While these moves offer immediate relief, potentially dropping repayments by hundreds of dollars, they can come with a massive sting in the tail," Tindall said.
"Before you sign up for years of extra debt, call your bank and demand a better rate. It's one of the best ways to lower your repayments without increasing the total cost of your loan."
Homeowners have been warned to prepare for possible future rate hikes, with economists predicting a further increase when the RBA meets next in May.
CBA, Westpac and NAB's cash rate outlook have all predicted a further 0.25 per cent increase in May, which would bring the cash rate to 4.10 per cent.
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