Major banks make call on interest rate hike by 0.25% to 3.85%

Australians have been dealt a chilling financial hit as interest rates have been hiked once again and now the major banks are responding.

Australians have been dealt a fresh blow as the Reserve Bank of Australia shocked most experts by hiking interest rates by 0.25 per cent to 3.85 per cent — now the first of the big four banks has responded to the news.

NAB’s standard variable home loan interest rate will increase by 0.25% p.a., effective from 12 May 2023. NAB’s current home loan rates are available here.

The bank will also increase rates for the following savings products, effective from 12 May 2023:

- NAB Reward Saver bonus interest rate will increase by 0.25% p.a., bringing the total bonus interest rate to 4.50% p.a.

- NAB iSaver introductory and standard variable rates will both increase by 0.25% p.a. to 4.50% p.a. and 1.85% p.a. respectively.

“The Reserve Bank’s decision to pause rates in April gave Australians some breathing room after 10 consecutive rate rises,” NAB Group Executive Personal Banking Rachel Slade said.

“With the cash rate increasing again, there may be some customers who are concerned about their financial position, and we are here to help.”

The RBA’s cash rate increase will add another painful $96 in monthly repayments to a $600,000 loan.

The move brings interest rates to its highest level since April 2012 and has seen Aussies slapped with their eleventh rate hike in the space of just 12 months.

It comes after it chose to pause its interest rate increases last month and had seen some of the major banks cutting their fixed rates.

Australians will be forced to fork out more money on mortgage repayments after the latest rate hike. Picture: Getty Images

But now Aussies can expect to be slapped with higher repayments as a result of the latest hike.

The May increase will add $82 to the monthly repayment on a $500,000 loan over 30 years, but it is the succession of repayment increases that is hurting borrowers.

Canstar’s analysis shows borrowers will be paying an extra $1133 in monthly repayments on a $500,000 loan or 54 per cent more than April last year

Australians with a $600,000 variable mortgage could be paying $1351 more each month compared to the start of May 2022, following a 3.75 per cent jump in interest rates in just 12 months.

Compare the Market’s General Manager of Money, Stephen Zeller, said many borrowers would be in a “world of pain”.

“But these rate rises are just the tip of the iceberg as homeowners are being hit with even higher costs with the cost of groceries, fuel and energy all soaring,” he said.

“With the home loan interest rate grenade is set to blow for many borrowers this year, many Aussies will be looking to refinance.

“If you’re on a fixed rate due to expire, you should be looking for the most competitive rate available and planning to make the switch or negotiating a lower rate with your current lender at least a month beforehand.”

Compare the Market general manager of money, Stephen Zeller. Picture: Linkedin

He added that in a time where the cost of living is so high, the smart choice isn’t to stay complacent and be loyal to your lender.

“There’s a number of cashback offers available right now that are attached to competitive rates,” he noted.

“If you’re not on a competitive rate, it’s time to consider switching – you could be saving thousands of dollars over the life of your loan”.

Existing mortgage holders with an average variable rate are already paying 1.54 per cent higher than the lowest variable rate of 4.94 per cent, according to Canstar, giving the potential to save $488 per month on a $500,000 loan repayment over 30 years.

Canstar’s finance expert, Steve Mickenbecker said the interest rise in May sends a “grim” message from the RBA that inflation is not under control.

“The Reserve Bank decided last month that it was time to pause the cash rate and watch the economy’s reaction to 12 months of record rate increases,” he said.

“The drop in inflation to 7 per cent in the March quarter was not enough for the Reserve Bank to be convinced it is imminently on track to reach its target 2 to 3 per cent inflation rate by 2025.”

Canstar’s analysis shows the cumulative increase to the interest rate will see existing borrowers’ home loan interest rates rise from an average of 2.98 per cent in April 2022 to now reach 6.73 per cent.

This means repayments on a $500,000 loan over 30 years have skyrocketed from $2103 to $3236 per month.

Originally published as Major banks make call on interest rate hike by 0.25% to 3.85%