Why are home loans rates climbing when the cash rate is still 0.10%?

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on April 16, 2021
Why are home loans rates climbing when the cash rate is still 0.10%?

A fair number of lenders raised rates on home loans this week, including Bankwest, Newcastle Permanent, and Greater Bank. But why?

All of these banks' changes were to fixed home loans, which generally means banks have forecast that their wholesale funding costs will rise in the coming months and years.

A large part of this is influenced by the Reserve Bank's cash rate, which still sits at a historic low of just 0.10%, and the RBA Governor has maintained that this will not be raised until 2024, or until inflation and wage growth have been lifted to 'comfortable' levels.

However, a little over a week ago, Adelaide Bank changed tack and raised interest rates on some variable loans by 15 basis points, a sign that things could change sooner than anticipated.

One factor that could stoke change is the Reserve Bank's Term Funding Facility, which provides low-cost funding to banks.

It's due to roll-back after June, which could mean wholesale costs for banks rise, which then flows on to borrowers.

Another factor is that the Government 10-year bond yield is rising, which is what banks look to, to determine what's going to happen to the RBA cash rate, as it influences inflation and other metrics.

The yield sits at 1.67% now - just a year ago it was around half that.


Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Lender
Advertised rate Comparison rate* Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval

VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
ZERO APPLICATION FEESFEE FREE OFFSET

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
  • No upfront or ongoing fees
ZERO APPLICATION FEESFEE FREE OFFSET

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
  • No upfront or ongoing fees
FixedMore details
USE A MARKET LEADING APP TO HELP YOU PAY OFF YOUR LOAN SOONER

Fixed Home Loan 1 year (Principal and Interest) (LVR < 80%)

  • Make up to $20,000 additional repayments per fixed term
  • Redraw available – lets you access any extra loan repayments you’ve made
  • Choose to rate lock for 90 days (fee applies)
USE A MARKET LEADING APP TO HELP YOU PAY OFF YOUR LOAN SOONER

Fixed Home Loan 1 year (Principal and Interest) (LVR < 80%)

  • Make up to $20,000 additional repayments per fixed term
  • Redraw available – lets you access any extra loan repayments you’ve made
  • Choose to rate lock for 90 days (fee applies)
VariableMore details
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • No application or ongoing fees.
  • 100% free offset sub account.
  • Fast online application, approval in minutes not weeks.
  • Mobile app, Visa debit card, Apple and Google Pay
  • Refinance loans and variable rates only.
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • No application or ongoing fees.
  • 100% free offset sub account.
  • Fast online application, approval in minutes not weeks.
  • Mobile app, Visa debit card, Apple and Google Pay
  • Refinance loans and variable rates only.

Rates correct as of January 21, 2022. View disclaimer.

Which lenders raised interest rates this week? 

There was a wide variety of home loan interest rate rises this week - below are some of the more prominent ones.

Northern Inland CU Rate Rises

  • Fixed Rate Investor 4 Years: Raised by 90 basis points to 2.89% p.a. (4.46% p.a. comparison rate*)
  • Fixed Rate OO 4 Years: Raised by 90 basis points to 2.89% p.a. (4.46% p.a. comparison rate*)

Bankwest Rate Rises

  • Complete Fixed 4 Years OO P&I: Raised by 30 basis points to 2.29% p.a. (3.43% p.a. comparison rate*)
  • Complete Fixed 5 Years OO P&I: Raised by 20 basis points to 2.59% p.a. (3.47% p.a. comparison rate*)

Newcastle Permanent Rate Rises

  • Investment Fixed 5 Years P&I Special Offer: Raised by 20 basis points to 2.99% p.a. (3.98% p.a. comparison rate*)
  • OO Fixed 5 Years P&I Special Offer: Raised by 20 basis points to 2.49% p.a. (3.58% p.a. comparison rate*)

These 'Special Offers' are for borrowers with a maximum loan-to-value ratio (LVR) of 80%.

Greater Bank Rate Rises

  • OO Great Rate Discount P&I Fixed 4 Years: Raised by 20 basis points to 2.29% p.a. (3.22% p.a. comparison rate*)
  • Inv Great Rate P&I Fixed 4 Years: Raised by 20 basis points to 2.79% p.a. (3.64% p.a. comparison rate*)

'Discounts' are available for borrowers with a maximum LVR of 80%.


Photo by Lindsay Henwood on Unsplash

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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Harrison is Savings.com.au's Assistant Editor. Prior to joining Savings in January 2020, he worked for some of Australia's largest comparison sites and media organisations. With a keen interest in the economy, housing policy, and personal finance, Harrison is passionate about breaking down complex financial topics for the everyday consumer.

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