When will my mortgage repayments increase? How long it takes for rate hikes to kick in

The Reserve Bank of Australia has hiked the cash rate multiple times in 2022, but millions of homeowners may have only noticed a few increases to their repayments so far. So, if your lender has announced it is passing on the latest rate hike, you may be wondering when exactly this will impact your mortgage repayments.

In September, the Reserve Bank of Australia (RBA) revealed another 50-basis point hike to the cash rate. Following this announcement, dozens of lenders, including the big four banks, announced they would be passing on this latest increase to their home loan customers. For three of the big four banks, this latest rate increase is effective as of the 16^th September, 2022.

However, while millions of variable rate customers will be charged higher interest from this point, their monthly mortgage repayments won’t increase right away. This is because your home loan lender will typically provide you with a lengthy notice period before your monthly repayments rise.

It could be weeks, even months, before you see your mortgage repayments rise to the level promised from the latest cash rate hike. The time it takes for your mortgage repayments to increase will depend on your lender’s notice period but is typically 20-30 days from the date of your notification letter.

Big bank rate hike schedules: When repayments will change

The big four banks’ home loan books make up the majority of the Australian home loan market. For their customers, these are the minimum notice periods for rate rises for principal and interest customers:

Lender notice periods for home loan interest rate rises

• CBA: at least 20 days’ notice from the date of customer’s notification letter.
• Westpac: at least 30 days’ notice from the date of letter.
• NAB: at least 32 days’ notice from the date of letter.
• ANZ: at least 30 days’ notice from the date of letter.

The interest rate on your home loan is typically calculated daily, and charged weekly, fortnightly, or monthly – depending on your chosen repayment time - on a specified due date set by the lender.

However, each lender has their own set of rules for how and when they pass on interest rate hikes to their customers, with these rules not made readily available. The above is not set in stone, so keep in mind that whenever your lender announces a rate increases, it’s likely it’ll take a few weeks, if not months, to kick in.

So, let’s say a hypothetical customer is charged interest on the 15^th of each month, and receives a notice from their lender of a rate change on the 1^st of that month, with a 20-day notice. By the time the 15^th rolled around for that month, they would not pay higher repayments yet, as this 20-day notice had not yet passed. But by the 15^th of the next month, they’d likely pay a higher rate amount.

Source: RateCity.com.au

Give yourself a rate cut in a time of rising rates

Variable rate home loan customers should have seen their interest rates rise by 2.25 percentage points since May. This increase will likely see the RBA’s average existing variable owner-occupier rate rise from 2.86% in April, to 5.11% by September.

RateCity has crunched the numbers and found that for a customer on a 25-year, $750,000 home loan, paying the average RBA existing customer rate of 2.86% in April, their home loan repayments will have increased by $922 by September.

That’s the equivalent of paying two energy bills, or a holiday weekend away, each month. For millions of homeowners in Australia, it’s likely that they’ve been tightening their belts to accommodate these rate rises and increases to their mortgage payments.

However, there are options available to homeowners to give themselves a rate cut in a time of rising interest rates:

• Utilise your home loan features – If your home loan comes with an offset account, any funds you deposit into this will work to reduce the amount of interest you are charged. For example, on a $750,000 home loan balance, having $100,000 in your offset account would mean your lender charges you interest as if your loan balance was really $650,000. Plus, if you need to dip into these funds for whatever reason, they may be available to you.

• Refinance to a more competitive mortgage – It could be worth considering refinancing to a more competitive home loan, such as one charging a lower rate, fewer fees, or offering helpful features, like an offset account. If you’ve built up equity in your home, and have not been too adversely impacted by recent property value decreases, you may be in a financial position to consider switching to a new home loan.

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