The Reserve Bank is widely expected to further lift the cash rate next week by 25 basis points, taking it to 3.35% – the highest rate in nearly 10.5 years.
If the cash rate rises by another 0.25 percentage points as predicted, home loan customers with a $500,000 loan at the start of the hikes last May, will pay a total $908 a month extra on their mortgage – that’s a 39% increase to their monthly repayments since the hikes began, according to analysis by RateCity.com.au.
“Borrowers are looking at the ninth hike in as many meetings, taking the cash rate to the highest level since September 2012,” said Sally Tindall, RateCity.com.au research director. “For the average existing owner-occupier, this could see their mortgage rate climb to over 6% and their monthly repayments rise by just under 40% since the start of May.”
Mozo analysis, meanwhile, showed that the cash rate hike would add $11,172 to the yearly cost of a $500,000 loan for an owner-occupier paying principal and interest. That’s for borrowers with the average variable rate of 3.08% in February 2022, who would be facing a 6.33% interest rate if their lender passed on all rate increases.
In its revised forecast released just last week, Deutsche Bank Australia said it is now predicting a total of four RBA hikes this year, with the cash rate peaking at 4.1% in August.
If this happens, the average borrower with a $500,000 loan at the start of the hikes could see their monthly repayments increase in total by 49%, or $1,134, in 16 months, RateCity.com.au analysis showed.
See the table below for the total increase to repayments from May 1 to peak:
|
Loan size |
CBA 3.35% |
Westpac 3.85% |
3.60% |
ANZ 3.85% |
Deutsche Bank Aus 4.1% |
|---|---|---|---|---|---|
|
$500,000 |
$908 |
$1,058 |
$983 |
$1,058 |
$1,134 |
|
$750,000 |
$1,362 |
$1,587 |
$1,474 |
$1,587 |
$1,701 |
|
$1 million |
$1,816 |
$2,117 |
$1,966 |
$2,117 |
$2,268 |
Source: RateCity.com.au. Calculations are estimates and repayments are for an owner-occupier paying principal and interest over 25 years. Loan sizes are based on a borrower’s debt at the start of the hikes and assumes the borrower does not renegotiate their loan in this time.
“While economists are split on just how high rates will climb, next week could be the first of up to four more rate rises this year,” Tindall said. “A cash rate starting with a ‘4’ might still be an outside chance, but people should plan for the possibility.
“If you’ve got a mortgage and are worried about rising rates then do a stress test on your loan. Work out how high your repayments would go if the cash rate hits 4.1% and make sure you have the spare cash to clear it on your current budget. When it comes to paying the mortgage, it’s far better to be over-prepared than to come up short.”
Claire Frawley, personal finance expert at Mozo, said home loan customers “shouldn’t just sit back and watch their variable rate increase; they need to be proactive.”
Mozo analysis showed that 52 lenders passed on all eight rate hikes, in full, last year. Currently, in the Mozo database, The Mutual Bank (4.29%) has the lowest interest rate followed by Unloan (4.44%) and Reduce Home Loans (4.48%).
“Lenders often have lower interest rates to attract new customers, so borrowers need to take charge,” Frawley said. “If you have watched your variable rate rise in-line with the RBA cash rate increases, then it’s time to do something about it and refinance.”
Mozo said that by refinancing from the average variable interest rate (5.68%) to the lowest rate in its database (4.29%), home loan customers could save up to $4,848 a year off their $500,000 owner-occupier mortgage.
Several lenders are also offering discounts to borrowers with more equity.
“The rising cost of living continues to drive up the cost of household expenses, so investing a bit of time into researching home loans to see if you can reduce your repayments and keep more money in your pocket is time well spent,” Frawley said.
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