RBA rate hikes have yet to fully flow through to home borrowers

The RBA raised the official cash interest rate by 0.25 percentage point on May 3, then imposed super-large increases of 0.50 percentage point on June 7, July 5 and August 2.

The cumulative impact is a $472 increase in monthly repayments for a $500,000 25-year floating rate mortgage, according to RateCity.

However, if only the May and June rate hikes had an effect on monthly amortizations, repayments would have increased by only $202 so far.

The major banks typically write one to two weeks after an RBA cash rate change to floating-rate mortgage customers, notifying them of an impending rise in interest rates and redemption costs.

The banks then usually give another 20 to 30 days before increasing the weekly, biweekly or monthly repayments.

For a borrower who has just made their monthly repayment, the higher repayment charges will not take effect until the next payment due.

While the higher interest rate calculation starts earlier, the minimum amount to be written off each month can take up to 60 to 70 days from the RBA’s announcement to affect people’s cash flow.

Mr Aird said the delay added to the case for the RBA to “slow down” its rate hikes, to assess the impact on people’s spending.

“It doesn’t matter at any other point in history, but we’ve never had a tightening like this before, so that’s why it’s more important,” he said.

A calendar quirk of when a borrower’s minimum repayment is due will affect the timing of the transfer.

But some customers who make biweekly repayments may experience multiple rate hikes in a single repayment.

Varied approach by big four

Commonwealth Bank is the country’s largest mortgage lender, providing approximately 25 percent of mortgages.

It usually imposes the higher interest rate about a week after the RBA decision, but then gives clients at least an additional 20 days before adjusting the monthly minimum repayments.

National Australia Bank applies the higher interest rate 10 days after the RBA decision, but gives approximately 30 days’ notice when a customer’s repayment will change if they have reached the minimum repayment amount.

ANZ typically charges the higher interest rate approximately 10 days after the RBA’s decision.

Westpac customers will be notified in writing that their refunds are changing, with at least 30 days’ notice before the refunds are increased.

Chris de Bruin, Westpac’s head of consumer and corporate banking, said it “will take time for the full impact of the RBA’s spot rate hikes to affect the Australian economy.

“And while the full impact of tariff increases has yet to be felt, we are aware that some customers are facing a number of other cost increases, including gasoline, electricity and groceries,” he said in a statement.

“We encourage any customer who is struggling to call us.

At this stage, we have not had an increase in clients requesting hardship assistance, but we continue to monitor the situation closely.

“Many of our clients have built up a financial buffer that helps mitigate the impact of changing repayments.

“Two-thirds are ahead of their mortgages and we’ve seen an increase in deposit and mortgage savings.”

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