Commonwealth Bank of Australia latest lender to raise rates

Commonwealth Bank of Australia (ASX: CBA) has become the latest bank to raise interest rates on some its mortgage products.

According to the Australian Financial Review (AFR), the Commonwealth is increasing the rates on its fixed-term owner-occupied and investor loans by up to 65 basis points. Australia’s largest lender will increase its two-year fixed rate by 0.15% to 3.99%, while standard five-year fixed rates will increase by 0.6% to 4.74%. Three-year fixed loans will increase by 0.2% to 4.09%.

Interestingly, the bank is also cutting interest rates on four-year fixed rates for both investors and owner-occupiers by 0.2% to 4.54% for the standard loan and 4.39% for the packaged loan.

National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) and an increasing number of smaller and non-bank lenders have already started increasing their fixed rate interest loans.

The changes don’t affect existing fixed rate loans – just customers taking out the new loans.

Variable-rate loans have yet to see rate rises, but it’s probably not far off.

Banks have increasingly blamed the cost of wholesale funding for the decision to raise rates. US mortgage rates have risen by more than 50 basis points since the November election.

The problem for mortgage borrowers, particularly property investors is that their interest costs are highly likely to rise.

The more properties and debt they have, the bigger the impact, and it could see several property investors crash and burn, unless they can pass on the costs to their tenants – who no doubt won’t be happy about that.

It could also be a major issue for the estimated 311,000 people who currently have negative equity in their homes. Should they be unable to increase their repayments under higher interest rates, selling would leave them with significant debts.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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