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Analysis by RateCity.com.au of technical assumptions in the RBA’s minutes shows the central bank anticipates the cash rate could increase to 1.75 per cent by the end of 2022 and to 2.5 per cent by the end of 2023.
If this is realised, that means the average variable owner-occupier with a $500,000 25-year loan could be paying $443 extra a month compared to when interest rates were just 0.1 per cent.
If the cash rate then increases to 2.5 per cent by the end of 2023, that same borrower could be paying $651 extra than they were since rate hikes began.
RateCity.com.au’s research director Sally Tindall said while we don’t know the exact timing or size of the interest rate hikes to come, we do know repayments are about to become more expensive.
“While Governor Lowe has said the RBA doesn’t know exactly how high the cash rate will go, or by when, what we do know is there are plenty more hikes to come over the next year and a half,” Tindall said.
“The average borrower is potentially staring down the barrel of $651 hike in total to their monthly repayments by the end of next year. That’s like buying a new dishwasher every single month.”
Tindall recommended borrowers map out what their worse-case scenario is to prepare for changes in the household budget.
“Sit down and work out what your repayments will look like, even if your rate rose by 3 per cent. If you don’t think you’ll be able to make these higher repayments, take action now,” she advises.
“The longer you wait to make changes, the bigger the bind you’ll find yourself in.
“Cutting back on regular expenses, switching to a more competitive home loan and asking your boss for a pay rise can inject some real, ongoing relief into your budget.”
“An argument for an increase of 40 basis points could be made given the upside risks to inflation and the current very low level of interest rates,” the RBA said.
Using the same $500,000 loan modelled above, a hike of 40 basis points in June would lift monthly repayments by $106.
Those with loans of $750,000 would be falling a $159-a-month hike while those with a $1 million loan would be looking at a $212 a month increase.
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