First major bank responds to interest rate hike
Australians have taken another hit as the Reserve Bank of Australia shocked most pundits by raising interest rates by 0.25 percent to 3.85 percent – now the first of the big four banks has reacted to the news.
NAB’s standard variable interest rate for home loans is increased by 0.25% per annum, effective May 12, 2023. NAB’s current rates for home loans are available here.
The bank will also increase the rates for the following savings products from 12 May 2023:
– NAB Reward Saver bonus interest will increase by 0.25% per annum, bringing the total bonus interest to 4.50% per annum
– NAB iSaver introductory and standard variable rates will both increase by 0.25% per annum to 4.50% per annum and 1.85% per annum respectively.
“The Reserve Bank’s decision to pause rates in April gave Australians some breathing space after 10 consecutive rate hikes,” said Rachel Slade, Executive Personal Banking of NAB Group.
“With the cash rate rising again, there may be some customers who are concerned about their financial position, and we are here to help.”
The RBA’s cash interest rate increase will add another painful $96 in monthly payments to a $600,000 loan.
This move takes interest rates to their highest level since April 2012 and has beaten the Aussies with their 11th rate hike in just 12 months.
It comes after it chose to pause its rate hikes last month and saw some of the major banks cut their fixed rates.
But now Aussies can expect higher refunds as a result of the latest increase.
The May increase will add $82 to the monthly payment on a $500,000 loan over 30 years, but it’s the succession of increases in amortization that hurt borrowers.
Canstar’s analysis shows borrowers will pay an additional $1,133 in monthly payments on a $500,000 loan, or 54 percent more than last April
Australians with a $600,000 variable mortgage could pay $1,351 more each month compared to early May 2022, following an interest rate hike of 3.75 per cent in just 12 months.
Compare the Market’s General Manager of Money, Stephen Zeller, said many borrowers would be in a “world of pain”.
“But these rate hikes are just the tip of the iceberg as homeowners face even higher costs, with the cost of groceries, fuel and energy all skyrocketing,” he said.
“With home loan rates set to blow for many borrowers this year, many Aussies will be looking to refinance.
“If you have a flat rate expiring, look for the most competitive rate available and plan to make the switch or negotiate a lower rate with your current lender at least a month in advance.”
He added that at a time when the cost of living is so high, the smart choice is not to remain complacent and loyal to your lender.
“A number of cashback offers are currently available that come with competitive rates,” he noted.
“If you don’t have a competitive rate, it’s time to switch – you could save thousands of dollars over the life of your loan”.
Existing average variable rate mortgage holders are already paying 1.54 percent more than the lowest variable rate of 4.94 percent, according to Canstar, giving the potential to save $488 per month on a $500,000 loan over 30 years .
Canstar’s financial expert Steve Mickenbecker said the May rate hike sends a “stark” signal from the RBA that inflation is out of control.
“The Reserve Bank decided last month it was time to pause cash rates and see how the economy reacted to 12 months of record increases,” he said.
“The drop in inflation to 7 percent in the March quarter was not enough to convince the Reserve Bank that it is on track to meet its target of 2 to 3 percent inflation by 2025.”
Canstar’s analysis shows that the cumulative increase in interest rates will cause existing borrower home loan interest rates to rise from an average of 2.98 percent in April 2022 to 6.73 percent today.
This means that the payments on a $500,000 loan over 30 years have increased from $2103 to $3236 per month.