NAB the third major bank to move on home loan rates

NAB has raised the standard variable interest rates attached to its interest only mortgages by 35 basis points, a move that will kick in for affected investors and owner occupier customers from June 30.

The big four bank’s decision comes only days after competitor Westpac hitched up rates on its interest only home loans by 0.34%, while ANZ similarly increased interest-only loans by up to 25 basis points two weeks ago, leaving CommBank the last major yet to move on rates.

Those who have been following home loan rate movements lately, may not be surprised to hear that NAB also sliced 8 basis points off its standard variable rate for owner occupiers paying off both the principal and interest - contributing to the wider trend of lenders reducing rates on these types of home loans, in a bid to improve the quality of their lending books.

In fact, one reason behind NAB’s decision to hit interest only borrowers, according to its Chief Operating Officer Antony Cahill was that the bank needed to comply with regulatory requirements, “including APRA’s 30% limit on new interest only lending for residential mortgages, while balancing the needs of customers”.

While those bearing the brunt of the changes may not be so thrilled to hear of the interest only rate hikes, the good news is that existing customers won’t be charged a fee if they decide to switch over to a principal and interest repayment plan with NAB instead.

Snapshot of NAB’s changes:

Rate hikes: 

  • Interest only mortgages offered to investors and owner occupiers will see their variable rates rise from 5.90% to 6.25% and 5.42% and 5.77% respectively.

Rate cut:

  • Standard variable rates available to owner occupiers paying both the principal and interest, will get reduced from 5.32% to 5.24%.

Cahill said that NAB’s customers affected by the rate cut, would benefit by being able to pay off their loans sooner. 

However, data analysis by Mozo has found using Cahill’s scenario, that while a homeowner on NAB’s average variable rate loan paying off the principal and interest* would complete paying off their home loan 7 months sooner (after the rate cut kicked in), if they simply refinanced to the best variable rate in the market offered by Reduce Home Loans at 3.44% and kept making the same loan repayments, he or she would actually be debt-free 5 years and 2 months earlier.

*Based on a homeowner (on NAB’s Choice Package loan with a 4.47% interest rate) paying off the principal and interest over 30 year term, whose rate cut kicked in after 12 months and decided to continue making the same monthly repayments despite the rate reduction.