The Big Bank surprises interest rates

The Big Bank surprises interest rates

Westpac Bank has taken a surprising step, opting to spare some customers the pain of an escalating price hike.

The big bank has announced that it will lower its four-year fixed interest rate for owner-occupiers by one percent to 4.99.

Westpac is the third of the big banks to announce interest rate changes after the Reserve Bank of Australia decided on Tuesday to raise official interest rates by 0.50% pa.

Unsurprisingly, the big bank has followed its rivals, the Commonwealth Bank and ANZ, in raising its variable rates on home loans.

The interest rate changes are effective Thursday, August 18 for new and existing adjustable rate home loan products.

Earlier today, ANZ joined the CBA and announced it will pass the increase on adjustable rate mortgages and a savings account for the full 0.50 percentage point.

The major bank announced that its increased mortgage rates will go into effect on Friday, August 12 for both new and existing customers.

The lowest variable rate is now raised to 3.69 percent – just below that of the CBA, which raised its lowest rate to 3.79 percent.

Both prices are at three-year highs.

The ANZ decision also included increasing the rate on its new ANZ Plus Save account by 0.50 percentage points to 2.50 percent for balances up to $250,000, effective Monday.

The move came just hours after Australia’s biggest bank, the Commonwealth Bank, announced it would pass the full 0.50 percentage point hike on to its variable home loan customers and some savings customers.

The CBA will bring its homeowner variable rate home loan rate and interest rates to 5.8 percent.

Uncharacteristically, Australia’s other big banks slowed after Tuesday’s RBA decision, while CBA rivals Westpac, NAB and ANZ are yet to make their announcements.

Mortgage rates for new and existing customers at CBA will rise 0.50 percentage point on August 12, with investor rates rising to 6.38 percent.

Research director at Sally Tindall said while the CBA’s decision came as no surprise, this fourth hike was a “hard pill to swallow” for customers already feeling the heat.

“Starting next week, the CBA’s variable base rate will hit a three-year high of 3.79 percent — a huge increase from just 2.19 percent three months ago,” she said.

For an owner-occupier with $500,000 in debt and 25 years left, the 0.5 percentage point increase means their monthly repayments will increase by $140.

To ease the strain, the Commonwealth Bank cuts its lowest four-year fixed rate to 4.99 per cent – down 1.60 percentage points.

This special rate, which comes into play on Friday, is exclusively for owner-occupiers paying principal and interest on a package plan ($395 annual fee) for a limited time.

While Ms Tindall said the “lush cut” will make it the lowest in its category, she warned that might not necessarily be a good idea.

“People should think carefully about putting their mortgage on hold for the next four years because there can be significant consequences if they decide to forfeit their loan,” she said.

For those with a NetBank Saver account who will see the full rate hike, the research director said a running rate of just 0.85 still won’t bring them down.

“In this market where we’ve seen ongoing rates in excess of 3 percent, those savers are still getting paid,” she said.

But Ms Tindall said there were signs things could be changing.

“On Tuesday, Macquarie announced it would cut its fixed rates significantly, and now CBA is following suit,” she said.

“We expect this to trigger further fixed rate cuts from other lenders in response to both changing market expectations and competition between banks.”

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