What do rising interest rates mean for investors?

Thursday, 30th Aug 2018
Categories: Uncategorized

Westpac has become the first of the ‘big four’ banks in Australia to increase interest rates on their variable home loans, following in the footsteps of smaller institutions such as AMP and Adelaide Bank who have already adapted their rates despite official interest rates remaining on hold.

With added speculation that other major lending institutions will be following suit in the coming months, many investors have been left wondering how these rate rises will impact their repayments, and what their next steps should be when it comes to ensuring they continue to receive competitive rates on their home or investment loan.

How is the rate rise impacting investors?

Whilst Westpac will be increasing interest rates by a relatively small amount at 0.14%, some lending institutions have been increasing their rates by as much as 0.4% in recent months. For investors, these rate rises can have a significant impact on their mortgage repayments, and implicitly the cash flow they generate from their investment portfolio. On a $400,000 loan amount, for example, a 0.4% rate rise could see investors paying $130 per month extra in mortgage repayments, which adds up to an additional $1,560 per year.

Why are banks increasing interest rates?

Despite the decision by the Reserve Bank of Australia to hold official interest rates at 1.5%, an increasing number of banks are making the move to independently raise rates on their mortgage products due to the increasing pressures of rising wholesale funding costs. This effectively means that the banks themselves are having to pay more to borrow money on international money markets. With banks unable to continue absorbing these costs, they are now passing this expense onto consumers in the form of higher interest rates.

What are the next steps?

With banks beginning to adapt their interest rates, and with more predicted changes in the pipeline, investors need to consider whether they are still receiving the best lending solution for their circumstances. Whilst this isn’t to say your current lender isn’t the best fit for you, getting your mortgage broker or financial advisor to review your current loans will ensure your loan strategy continues to align with your property investment goals, and could save you considerable money on your mortgage repayments in the long-term.

If you would like to organise a review of your current loans or speak to one of our investment finance specialists about recent changes in interest rates, our team would be happy to discuss your needs in an obligation-free consultation.