An Australian mortgage holder with a $500,000 loan could fork out an extra $200 or more on their monthly repayments if forecasts of an earlier interest rate hike are realised.
Australia’s biggest bank is now expecting rates to increase in June following higher-than-expected inflation and strong employment figures.
Commonwealth Bank currently expects the Reserve Bank to lift the official cash rate by 15 basis points in June, then by 25 basis points twice in the third quarter of 2022, and once more in the fourth quarter, taking the cash rate from the current record low of 0.1% to a flat 1% by the end of this year, 9News.com.au reported.
If this forecast is realised, a borrower owing $500,000 could see monthly repayments rise by $236 by the end of this year,according to data from RateCity.com.au.
The estimate includes principal they would have paid off in this time and assumes that the borrower has 25 years remaining on their loan.
By February 2024, the same borrower could be paying $303 more per month than they currently are.
Sally Tindall, research director at RateCity.com.au, said borrowers on variable rates should negotiate with their lender prior to the RBA making a formal decision.
“Mortgage holders should heed Governor Lowe's advice and build a buffer now to help them tackle the upcoming rate hikes head on,” Tindall told 9News.com.au. “People on a variable rate can also haggle with their bank or switch lenders to get themselves on a better rate now so they're coming off a lower base when the hikes come rolling in. If you're on a variable rate, with a steady job and have a good track record of paying down your debt, then you probably have more negotiating power than you realise.”
Tindall encouraged borrowers to check their options before contacting their lender.
“Call your bank and ask for a rate cut,” Tindall told 9News.com.au. “Before you call, check what your bank is offering new customers for the same home loan, but also find out what other lenders are likely to offer you. There are plenty of low variable-rate options on the table and dozens of lenders are also offering cash back to refinancers. If you are taking out a cashback offer, make sure the numbers stack up in your favour.”
