While fixed rates have been rising for six months or more - a sure indication the cash rate will start to tick up at some stage - some lenders are going rogue on variable rates for refinance loans and have started hiking, irrespective of the Reserve Bank (RBA) holding the cash rate steady.
The shock move comes as geo-political panic – yes, Putin – combines with an increased cost of lending for the banks themselves.
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The outlook for official interest rates is certainly up, as inflation (in particular petrol prices), forges higher.
But despite hikes not yet happening, exclusive analysis for Yahoo Finance by Mozo shows 17 lenders have now upped the variable interest they charge new customers.
And approximately two-thirds of Aussie borrowers are on variable rates.
Which lenders and who pays?
The Mozo analysis shows the latest to move is Aussie Home Loans with its Select Basic Variable home loan.
New loans to owner-occupiers making principal and interest repayments will cost 5 to 15 basis points more.
The rate for borrowers of $100,000 to $5,000,000 at between a 60 per cent and 80 per cent loan-to-value ratio will be 10 basis points higher, taking it from 1.99 per cent to 2.09 per cent.
And many of the other new mortgage moves are even higher. Investors have not been spared either.
There has been a massive upsurge in refinancing in the past couple of years, as savvy Aussies rush to take advantage of the (previous) pandemic price war.
Last year was the biggest year on record, with loans totalling $181 billion switched to better deals.
Ten basis points added to a variable interest rate of 3.5 per cent, on a $600,000 home loan, costs $32 extra a month.
Twenty-five basis points means finding $81 more.
And of course, it’s upwards from there.
Conspicuous by their absence so far are the Big Four banks. Their average discounted variable rate remains at (an uncompetitive) 3.46 per cent.
“It’s clear a number of lenders are not waiting for the cash rate to move before increasing their variable interest rates but the question is when will the Big Four banks make their move?” Mozo’s Tom Godfrey told Yahoo Finance.
So, where can you get good value?
Did you clock that Aussie’s variable loan now starts with a “2” and the Big Four’s offerings already with a “3”?
Well, there are still decent variable loans with an interest rate that starts with a “1”.
The cheapest rate on Mozo’s database is 1.77 per cent from Reduce Home Loans, available with a loan-to-value ratio of 80 per cent or less.
Next is Well Home Loans (1.85 per cent), Homeloans360 and Pacific Mortgage Group (both 1.87 per cent), and Tic:Toc (1.89 per cent).
How do you identify the best loan for a refinance?
You don’t just want cheap; you want value.
This would normally be a loan that carries an authentic offset account, to let you use every dollar to your name to slash your ultimate interest bill.
Usually, it’s only variable rate loans that carry a dollar-for-dollar, 100 per cent offset account.
It’s important to note some online lenders only say they have offset accounts and really just offer all-in-one loans with, not just less flexibility, but also less safety.
Money you house in them is not covered by the Australian Government Deposit Guarantee. So, make sure to ask.
In your bid to be mortgage-free, a genius strategy is to - what I call - “Up stumps but still stump up”: refinance to a sharper product and simply keep your repayments the same.
It saves a huge amount of money and time, for not a cent more than you are used to paying.
Should you fix?
If you are tempted to fix to stop the slow march of rising rates, the deals are not nearly as good as six months ago.
Having said that, you can still get a one-year rate of 1.98 per cent from G&C Mutual, a 1.89 per cent rate from Great Southern Bank for two years and a 2.4 per cent from Illawarra Credit Union for three years.
Another consideration in the decision however, is that you cannot usually pay extra on a fixed-rate loan, which cuts down your ability to get mortgage-free early.
“There is little doubt that variable interest rates will continue to climb in the months ahead, so now is a good time to compare rates and make sure you’re getting the best deal possible,” Godfrey said.
In fact, often the best way is to fix just half your mortgage and ride the market with the remaining variable portion, so you can pay this part down, far and fast.