RBA interest rate hike set to rise, WA dad saves $8400 a year on fixed rate
He’s raising his 10-year-old daughter alone, but he’s found a way to save $8,400 a year in a time when “every penny counts.”
Hundreds of thousands of Aussies are “sitting on the edge of a cliff” as up to $400 billion in fixed interest rate mortgages expire over the next few years.
It comes at the worst possible time for many homeowners, with multiple interest rate hikes on the horizon as the cost of living bites – possibly as early as next Tuesday, several major banks have warned.
However, single dad Michael Brooks from Western Australia has found a loophole and will save $8,400 a year.
The 44-year-old single father from Perth realized that the three-year fixed loan for his house was about to end. But when he looked at refinancing options, he was “appalled”.
His bank was essentially charging him a “loyalty tax” where they were offering him a rate of 4.19% for a renewal – even though they claimed they could give 3.19% on their website.
“If they can’t offer a 20-year-old customer their best advertised rate, they don’t deserve my business,” Mr Brooks told news.com.au.
In January, Mr Brooks turned his back on his longtime bank and joined a small digital lender called Nano which could give him a rate of 2.79%.
“Compared to where I started, I saved over $700 a month,” he said.
This translates to $8,400 saved per year – or $25,200 still in your pocket over the three-year period. And he stressed that as a single dad with a rising cost of living, every dollar counts.
“I’m a single dad and I have an income, I have to maintain the house I live in… Every penny counts,” he explained.
“As interest rates go up it will reduce discretionary spending, it could mean postponing the car upgrade for a few years. Rising interest rates could just mean I have less safety margin there if misfortune occurs.
With this in mind, he willingly changed lenders.
Nano claims that around 75% of its refinance request comes from traditional banks, while 56% of those refinance requests alone come directly from the big banks.
“It’s about the bank being transparent,” Brooks added.
Even though the RBA has not raised the cash rate since November 2020, several banks have already raised their fixed rates ahead of the impending announcement.
Some have also cut their variable rates to entice borrowers back into the fold.
For example, Commonwealth Bank last month raised its three-year fixed mortgage rate by 0.3% to 3.79%, which is now more than 1.5% higher than the variable-rate offer.
NAB and ANZ – Australia’s third and fourth largest banks – also raised fixed interest rates on homeowner loans by up to 0.4 percentage points.
Interest on a one-year fixed rate for ANZ and NAB is now 2.99%, while five-year fixed rates are also the same at 4.49%.
RateCity.com noted that this was the seventh time NAB had raised its fixed rates in the past six months and the sixth time for ANZ in the same period.
As recently as September, the big four banks were offering three-year fixed rate home loans of between 1.98% and 2.19%.
Now, those rates are between 3.59% and 3.79%.
While the RBA’s previous stance had been to hold interest rates until 2023, the data showed the cost of living hit a 22-year high, rising 5.1% year-on-year. the other in March.
This has left the RBA no choice but to raise rates several times this year.
Three major banks are planning an interest rate hike next Tuesday.
ANZ, NAB and Westpac both predicted a 0.15% rise in early May.
This will be the first time interest rates have risen in 11 years.
Commonwealth Bank also forecast a 0.15% rise but for June, although there were chilling warnings that interest rates could hit 2.5% in total by the end of the month. year.
Andrew Walker, CEO and founder of Nano, warned that Australians are “sitting on the edge of the fixed rate rollover cliff”.
“Commonwealth Bank of Australia alone is expected to have $53 billion in fixed rate mortgages converted to variable rates in the second half of 2023,” he said.
“Assuming the other major banks mirror the same structure as the CBA, we could expect to see $400 billion of fixed rate mortgages move to a variable interest rate over the next two years.”