Borrowers are being warned to prepare for the impact, with the RBA poised to raise interest rates again and with it mortgage repayments.
The burn from last month’s interest rate hike can only get worse for homeowners, with the Reserve Bank of Australia (RBA) poised to raise rates for the second time in as many months later in the year. daytime.
In May, the RBA announced it was raising the cash rate from a record high of 0.1% to 0.35% – the first increase in 11 years – in a bid to start “normalizing monetary conditions” following Australia’s remarkable economic recovery from the crisis. pandemic.
The hike was a month earlier and 10 basis points higher than expected and at the time RBA boss Philip Lowe warned that there would be further rate hikes to “ensure that the inflation in Australia will return to target over time”.
The next RBA meeting is today, and the bank is expected to announce that rates are rising again – potentially up to 40 basis points.
A 40 basis point increase would take the official rate to 0.75%.
With this ominous warning and many first-time borrowers feeling the sting of rising interest rates, here’s how much extra money you may need to shell out to cover your repayments.
How much will my mortgage payments increase?
To put it simply, we factored in the same $500,000 25-year loan that we used in May for the June forecast; but with an average mortgage.
In May, when rates hit 0.35%, repayments of such a loan principal and interest increased by an additional $68 per month, according to Mozo’s online calculator.
If the RBA raised rates to 0.6% on Tuesday, those loan repayments would increase by another $67 (to $2,423 per month).
And if rates rose to 0.75%, monthly repayments would increase by $107 (to $2,530 per month).
You can use our rate calculator below to find out how much your monthly repayments would increase.
By how much could/has the interest rate increased?
Experts were way off in their latest predictions and PropTrack economist Paul Ryan told news.com.au ahead of the RBA meeting that they were still split on the possible June hike.
Mr Ryan said that while some economists are predicting another 25 basis point hike (taking the rate to 0.6%), others are bracing for a 40 basis point hike (taking the rate to 0, 75%) to “compensate” for the exceptionally low rate during the pandemic.
“Forty would essentially bring the cash rate down to a multiple of 25 basis points,” he said. “And the RBA likes to move in multiples of 25.”
The RBA last raised the cash rate in November 2010, taking it 25 basis points to 4.75%, above the 3.93% average.
How to Prepare for Impact
Mr Ryan said that although rising interest rates will likely sting new mortgage holders, their lenders should have assessed and considered their ability to pay a higher interest rate. It might hurt them, but it shouldn’t break them.
“Essentially, lenders took that repayment shock into account and kind of factored it into their loan approval decisions,” he said.
“But nonetheless, I think it’s going to be a bigger shock to households with new mortgages.”
He said it was best for households to anticipate a higher-than-expected rate hike and wonder how well they would find the extra cash to repay loans if they did.
“It is arguably helpful for households to start tightening their belts in anticipation of these additional pressures on their family budget, rather than them coming as a shock and becoming unbalanced,” he said.