Interest Rate Rise: How Long Does It Take to Kick In?
Household budgets around the country are feeling the brunt of five back-to-back rate hikes, and we are warned that more are on the way. But how long does it take for each rate rise to impact your monthly mortgage repayments?
In early September, the RBA raised the cash rate to 2.35%. It was the fifth cash rate hike in a row and the fourth straight double rate increase of 50 basis points.
In response, many lenders have increased their variable interest rates. Thankfully, lenders do not slug you with a mortgage repayment hike straight away… there is a little lag time to help you prepare. But how long?
When Exactly Will the Variable Rate Rise Kick In?
After the RBA hikes the official cash rate, your bank will (usually) announce its own interest rate hike from a specific date. But this does not mean your repayments will immediately increase when that date arrives. Exactly when your rate rise kicks in depends on the lender, their policies, the home loan agreement, and the repayment schedule.
Lender notice periods for interest rate rises are also different from bank to bank with CBA’s lasting 20 days, Westpac lasting 30 days, NAB lasting 32 days and ANZ lasting 30 days.
Here is an example… let’s say your monthly mortgage repayments are made on the 20th day of each month. Let’s also assume the RBA increases the cash rate on the 4th of October, and you receive a notice from your lender on the 7th of October of a subsequent rate increase, with a 30-day notice period. By the time the 20th of October arrives, you will not be paying higher repayments as the full 30 days’ notice has not passed. When the 30 days’ notice finishes on the 6th of November, the daily interest rate charged will increase to the new amount. This means that when your monthly repayment on the 20th of November rolls around, you will be charged the new, higher rate (but calculated only from the 6th of November). This means there is a 44-day heads up from the lender, and it will not be a full increase yet either. By the time the 20th of December arrives, the repayment amount you are charged will fully reflect the new rate.
Are You Worried About How Rate Rises Are Increasing Your Mortgage Repayments?
If you have received your rate rise notice and your budget forecast is looking tight, rest assured that there are steps you can start taking now to help ease the pain. First and foremost, if you have not refinanced for a while, there is a decent chance you could get a better rate on your home loan.
For example, let’s say you refinance your variable rate home loan from 5% down to 4.5%. If the RBA raises the cash rate by 0.5% the month after, and your bank follows suit, your interest rate will then be 5% – not 5.5% like it could have been if you didn’t refinance.
Another option is consolidating multiple loans, such as car or personal loans, into your mortgage to reduce your monthly expenses. However, keep in mind that, because home loans are longer, consolidating mean you will pay more interest over the lifetime of the car and/or personal loan that you would have otherwise.
You could also consider refinancing, with guidance from a mortgage broker, to extend the term of your mortgage and help reduce monthly repayments. Once again, you will end up paying more interest over the life of your loan, but it could provide assistance in your current situation.
Frequently Asked Questions
What is the impact of consecutive rate hikes on household budgets?
Household budgets are feeling the strain due to five back-to-back rate hikes. More rate hikes are expected, and it's essential to understand how these will affect your monthly mortgage repayments.
How long does it take for a rate rise to affect my mortgage repayments?
The time it takes for a rate rise to impact your mortgage repayments depends on various factors, including the lender's policies, the home loan agreement, and the repayment schedule. Lenders also have different notice periods for rate rises.
What can I do to prepare for rate hikes?
If you're concerned about how rate hikes will affect your budget, there are several steps you can take. Refinancing your home loan to get a better rate is one option. You can also consider consolidating multiple loans into your mortgage to reduce monthly expenses.
How does the RBA's cash rate affect my mortgage rate?
When the Reserve Bank of Australia (RBA) raises the cash rate, lenders usually follow suit by increasing their variable interest rates. However, there is usually a lag time before these changes affect your mortgage repayments.
Are there any strategies to mitigate the impact of rate hikes?
Yes, you can consider refinancing to extend the term of your mortgage, which could reduce your monthly repayments. However, this will result in paying more interest over the life of the loan.
Get in Touch
Everybody’s situation is different, and we understand some of the ideas above might not suit your financial or personal situation, but there are others that could. If you are worried about how you will meet your repayments in the months ahead, give us a call and we will sit down with you to help work out a plan moving forward.
Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business.
About the Author:
Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilises her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.
Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).
Disclaimer: This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial. r-less normal distribution of letters. making it look like readable English.