Q: I’ve just been told that my variable interest rates are going up on my home loans – both my investment property and my own home loan. I understand that the rate is variable, but why are rates going up and shouldn’t customers be notified of a rate change in advance as this will affect the minimum payment?
A: This is a great question and one I think that many mortgage holders around the country will be asking as the recent increases in variable home loan interest rates take effect.
Why variable rates are increasing
In July 2015, APRA (Australia’s banking regulator) asked the major banks CBA, NAB, ANZ, Westpac plus Macquarie to hold more capital reserves. They did this partly to help protect against any possible property market bust, but also to help level the competitive playing field between large and small banks.
I explained this in more detail when rate increases were mainly applicable to investment loans, but now many owner occupiers are also affected.
All lenders are impacted by the recent regulatory changes and rising capital costs in some way. While it was the big four and Macquarie who were charged with holding more capital, other banks and lenders are also putting their variable interest rates up.
This is because borrowing costs for our bigger banks are quite often cheaper than smaller lenders’ costs, so by trying to remain competitive these smaller players are already losing out. The big banks putting rates up gives smaller players the chance to fill the hole they have by trying to remain competitive, with many probably making very small margins, if any.
Notification requirements of variable interest rate rises
Customers should definitely be notified of a rate increase in advance of a change. Banks and lenders have obligations under the National Credit Code to notify customers of any rate increase. This includes advertising in a national paper the new, increased rate no later than the day the change comes into effect.
Beyond this, obligations to give notice to customers of rate increases will be covered in your contract.
For our Aussie Select products, we advertise reference rate changes on or before the effective date for any increase or decrease, and after that we notify customers in writing giving at least 20 days before their repayments will start going up.
Importantly repayments go up as per a borrower’s normal repayment cycle. For example, if a reference rate increased on 20 November, the customer’s next repayment after 20 December will be the higher amount on the date of their usual repayment.
If you have questions about changes to your rates, I’d suggest you contact your lender and also have a look through your contract. If you want to review your home loan more broadly and see if you can find a better deal, I suggest you contact an accredited mortgage broker like Aussie.
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