Australia has raised the interest rates for the first time in nearly 12 years, causing many Australians’ expenses to shoot up – especially the borrowers who stretched themselves to get into the hot housing market.
The Reserve Bank of Australia (RBA) recently announced an increase of the official cash rate by 25 basis points higher to 0.35%, the first rate hike since November 2010. With surging inflation already putting pressure on families through higher costs across other household spendings, many are wondering why the RBA would also move to increase mortgage repayments with a higher cash rate.
How will a higher interest rate impact me?
For homebuyers, the increased interest rate will affect your borrowing capacity as the cost of borrowing becomes more expensive. Therefore, if you have any personal loans (including those for renovations), it means that you will pay more interest on the loan (or loans) you currently have.
The general consensus in the market is that you should prepare for home loan repayments to increase significantly over the next 12-25 months. For example, your repayments on a $550,000 home loan could increase by more than $300 per month – with just a 1% rate rise.
How high will interest rates go and how quickly will they rise?
While this depends on which economist you ask, CBA currently estimates neutral to be 1.25% and expects rates will gradually increase to that point by the first quarter of 2023.
That being said, CBA’s forecast is a best-case scenario for homeowners when compared to the predictions of the other big four banks. NAB is forecasting the cash rate will reach 2.5% by August 2024, while Westpac economists think the cash rate will reach 2% by May 2023. ANZ predicts it will shoot to 2.25% over the next 12 months.
With interest rates rising, now is the time to review and ensure that you have secured the best rates on your home loan. Book a free and obligation-free review of your current home loan with our lending team and we’ll also provide you with insights on how to reduce mortgage stress with any future rate rises. Call 1300 815 921 or email firstname.lastname@example.org.
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