CBA Raises Fixed Rate Mortgage Interest Rates

Post by Sharat on September 29, 2009 · Under Australian Economy, Business News, Capital Markets, Company News, banking, home loans, interest rates, mortgages · Comment

Australia’s largest mortgage lender Commonwealth Bank of Australia (CBA) has raised interest rates on its fixed rate mortgages, pre-empting the first tightening in official interest rates expected by the Reserve Bank of Australia before the year is out.

On Monday, CBA announced that it would be increasing fixed interest rate mortgages by 50 basis points to 6.19 per cent. It also said it would raise the rate on two year fixed rate home loans by 30 basis points to 6.84 per cent.

CBA’s three year fixed rate mortgage rate will now cost 7.29 per cent, an increase of 15 basis points, whilst home loans with a five year term will be 10 basis points more expensive and cost 7.69 per cent.

CBA has been considering hiking fixed mortgage rates for the last two weeks, with the lenders interest rate committee voting on Monday to implement rate increases.

Last month rival Westpac also raised interest rates on its fixed rate home loans.

A CBA spokesperson cited higher rate funding costs as the reason for its decision to raise interest rates, and said financing was still expensive despite global credit markets stabilizing after the financial crisis.

“The reason is that in terms of the one-to-four year mortgages, the cost to the bank is still elevated and we are pricing them to reflect that the cost is more expensive. We have not moved the fixed rates on our five-to-15 year loans because our funding forecasts have been very accurate.” The spokesperson said.

Standard variable rates have yet to rise, but financial markets have priced in expected hikes in official interest rates by the Reserve Bank of Australia before the year is out.

The market expects a 20 per cent chance of an October rate increase; however market participants and economists are unanimous in their view that a November increase by the RBA is extremely likely.

Financial markets have predicted the official cash rate could be up 1.7 per cent higher by September next year.

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