RBA Leaves Cash Rate on Hold Again – Why has my Interest Rate gone up?

August 01, 2017
Matt Spooner

The Reserve Bank of Australia has again today left the cash rate on hold at a historical low of 1.5%, marking the 11th consecutive month that the rate has stayed the same. The RBA Governor, Philip Lowe also gave very little indication as to when we could expect rates to change, only commenting that the Reserve Bank had not changed its outlook on the Australian Economy.

This afternoon, I like many other brokers received a number of calls from my clients asking me why, if the cash rate had stayed on hold for an 11 consecutive month, have they seen rises on their variable Investment and Owner Occupied loans.

In my research with these clients I have spoken to – the most common reason for this is:

You have an Interest Only Repayment arrangement with the bank:

Once a very popular repayment arrangement, particularly in hot property markets such as Sydney and Melbourne, Interest Only repayments were once very popular with property investors and owner occupiers alike – as they allowed for certain taxation benefits for investors, particularly, while reducing the impact home loans  had on cash flow by reducing the repayments to literally – only the interest and none of the principal amount owed.

What’s changed?

The Australian Prudential Regulatory Authority, or APRA, has enforced a limit on Interest Only Lending, meaning that Banks have had to encourage customers to move away from Interest Only lending. Often this is done by raising the Interest Rate on these types of loans, and reducing the rates on others, such as Principal and Interest arrangements.

Some lenders have raised their Interest Only rates for Owner Occupiers by up to 60 basis points.

What should you do?

If you do have an Interest Only Repayment arrangement, it could be time for you to review your situation and assess if this is still the right arrangement for you. Your broker should be able to run a cost comparison for you, and give you an indication as to how much interest you would save by making the switch.

Give us a call today to make an appointment to review your loans.

*The advice provided above constitutes general advice only, and does not take into account your personal circumstances.

Posted in: Interest rates

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