Money habits that may raise lenders’ eyebrows
30/03/2023
What is the fixed-rate cliff and how can refinancing help?
13/04/2023
And … exhale. After 10 straight rate hikes the Reserve Bank of Australia (RBA) has today decided to put the official cash rate on hold. But for how long?
The decision to keep the official cash rate at 3.60% will be welcomed by homeowners around the country after monthly repayments increased by about $1000 per $500,000 loaned (for a 25-year loan) since 1 May 2022.
RBA Governor Philip said the RBA board took the decision to hold interest rates steady this month to provide additional time to assess the impact of the increase in interest rates to date and the economic outlook.
“The Board recognises that monetary policy operates with a lag and that the full effect of this substantial increase in interest rates is yet to be felt,” he said.
However, while the cash rate was not increased at today’s RBA meeting, Governor Lowe signalled there might be more rate hikes in the coming months.
“The decision to hold interest rates steady this month provides the Board with more time to assess the state of the economy and the outlook, in an environment of considerable uncertainty,” he said.
“In assessing when and how much further interest rates need to increase, the Board will be paying close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market.”
How much have your repayments increased since 1 May 2022?
Let’s say you’re an owner-occupier with a 25-year loan of $500,000 paying principal and interest.
The wave of 10 successive rate rises means the repayments on your mortgage have increased by about $985 a month compared to 1 May 2022.
If you have a $750,000 loan, repayments will likely have increased $1,478 from 1 May 2022.
Meanwhile, a $1 million loan is up about $1,980 from 1 May 2022.
What happens if the cash rate increases further in future months?
Economists at the big four banks have forecast that the cash rate will peak at either 3.85% or 4.10% in the months to come (so, just one or two more cash rate hikes to go).
Assuming you’re an owner-occupier with a 25-year loan, here’s how much more you could be paying each month if the cash rate reaches 4.10%:
– $500,000 loan: approximately $75 extra per rate rise = up $1135 from 1 May 2022, to a total of approximately $3,470 per month.
– $750,000 loan: approximately $112 extra per rate rise = up $1702 from 1 May 2022, to a total of $5,200 per month.
– $1 million loan: approximately $150 extra per rate rise = up $2280 from 1 May 2022, to a total of $6,950 per month.
Worried about your mortgage? Get in touch
Despite today’s reprieve, there’s no denying that a lot of households around the country are feeling the pain after 10 successive rate rises.
There are also lots of people on fixed-rate home loans wondering what options will be available to them once their fixed-rate period ends.
Some options we can help you explore include refinancing (which could involve increasing the length of your loan and decreasing monthly repayments), debt consolidation, or building up a bit of a buffer in an offset account ahead of more rate hikes.
So if you’re worried about how you might meet your repayments going forward, give us a call today. The earlier we sit down with you and help you make a plan, the better we can help you manage any further rate hikes.
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