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The news no Aussie homeowner wanted to hear landed like a lead balloon early in July.
Another month, another double hike to the cash rate from the Reserve Bank of Australia (RBA). This rise brought the official cash rate to 1.35% up from the 0.1% low back in November 2021.
In their latest announcement, the RBA reiterated the need for and purpose of the rate rises, which is to:
- Curb inflation
- Slow consumer spending
- Place downward pressure on property price growth; and
- To protect the value of our savings
But while the RBA has been clear in communicating the need for rate rises, they’re not yet clear on how many rate rises will be required to achieve their objectives.
And it’s this uncertainty that has left homeowners more nervous than a NSW fan in the lead-up to a State of Origin decider.
Particularly when you consider that for anyone who has purchased a home in the last decade, rate rises are a foreign concept – in fact, not since 2010 have we seen rates go up.
So What Do The Latest Interest Rate Rises Mean for Homeowners?
If you’ve got a mortgage or a variable interest loan, the extent of the impact on your repayments will ultimately be dependent on how much of the rate hike your lender will pass on.
If the entirety of the increase is passed on, which is a fair bet and assuming a loan term of 25 years, monthly mortgage repayments will rise by approximately $139 for a $500,000 loan, $222 for an $800,000 loan, and $277 for a $1,000,000 loan.
Add to this the impact of the previous interest rate rises, alongside the increased cost of living for things like groceries and fuel, and it’s clear the RBAs rate rises have many of us feeling the squeeze financially.
What rate rises are the experts predicting?
Across the board, experts from the big banks are predicting that we’ll see the cash rate rise to 2% or greater by the time fireworks fill the sky on 31st December. Up from the current rate of 1.35%.
Cash rate predictions from the BIG-4:
- Westpac – 2.35% cash rate by early 2023
- Commonwealth Bank – 2.10% cash rate by end of 2022
- ANZ – 2.00-3.00% cash rate by end of 2022
- NAB – 2.00-2.35% cash rate by end of 2022
What the predictions above ultimately translate to is a potential 4 or 5 additional rate rises this year.
What does this mean for home loan interest rates?
It means variable home loan interest rates could rise by anywhere from 2-3% over the next couple of years.
For the average owner-occupier loan this would mean an interest rate of 5% or more by 2023.
What can you do to protect against rising interest rates?
Despite the rises, the situation is not entirely helpless.
The options for offsetting the rising costs include:
- Negotiating a better interest rate with your current lender
- Refinancing to a lender with a better rate
- Placing additional savings in your offset account (if you have one); or
- Refinancing to a fixed interest rate if you need greater certainty over the coming 2-3 years
But with further rate rises looming, now is the time to act!
Switching to a Different Lender Could Save You Thousands This Year
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