ING Direct, Australia's fifth largest retail bank, announced today it will increase its residential variable home loan rates by 0.38% p.a. effective from 16 November 2010.

The bank's most popular home loan, Mortgage Simplifier, will increase to 7.12% p.a.

The increase reflects a continued rise in the cost of funding home loans and the recent Reserve Bank cash rate increase.

ING Direct will also abolish its Deferred Establishment Fees for new and existing residential home loan customers effective from 16 November 2010.

Deferred Establishment Fees apply where ING Direct customers repay their home loan in full within the first four years of settlement.

"This decision is to encourage further competition in the Australian home loan market, further reinforced with our current $1,000 cash back offer to customers who switch their banking to ING Direct," the bank said.

ING Direct joins Westpac, NAB, CBA and ANZ in lifting rates above central bank levels. The Australia Institute says the Big Four's decision to charge borrowers above the RBA's Melbourne Cup move of 0.25 percentage points will boost their bottom line by $1.2 billion a year.