Earlier this week the official cash rate was increased by the RBA to 1.35% – the second double-barrel 0.50% hike in a row.
RBA Governor Philip Lowe said in a statement that the cash rate rise was the result of high inflation, both in Australia and around the world.
“Global factors account for much of the increase in inflation in Australia, but domestic factors are also playing a role,” said Governor Lowe.
“Strong demand, a tight labour market and capacity constraints in some sectors are contributing to the upward pressure on prices. The floods are also affecting some prices.”
What the rate rise could cost you each month.
Unless you have a fixed-rate mortgage, the banks are likely to increase the interest rate on your variable home loan soon, following the lead of the Reserve Bank of Australia.
Let’s say you’re an owner-occupier with a 25-year loan of $500,000 (paying principal and interest).
This month’s 50 basis point increase means your monthly repayments could increase by about $137 a month.
If you have a $750,000 loan, repayments will likely increase by about $205 a month, while a $1 million loan is expected to cost an extra $273 a month.
But that’s just factoring in this month’s latest cash rate hike.
Let’s take a look at how much more you can expect to pay moving forward, compared to when the cash rate was 0.10% in April.
- For a $500,000 loan, you’ll likely be paying an extra $67 (May hike), $133 (June hike) and $137 (July hike) = $337 per month in interest repayments.
- For a $750,000 loan, you’ll likely be paying an extra $100 (May hike), $200 (June hike) and $205 (July hike) = $505 per month in interest repayments.
- For a $1,000,000 loan, you’ll likely be paying an extra $133 (May hike), $265 (June hike) and $273 (July hike) = $673 per month in interest repayments.
If you’re worried about your monthly repayments getting even higher, get in touch with the mortgage broker team at Broad Finance.
As you can see, your monthly mortgage repayments will likely have increased significantly since the end of April unless you are on a fixed rate.
And it is probable that the Reserve Bank of Australia will implement a few more cash rate increases before the end of the year.
So if you’re starting to feel the pinch and are worried about what interest rate rises might mean for your monthly budget, feel free to contact us today.
There are several options you can explore to ease the burden of monthly repayments, including refinancing, consolidating your debt, or building up a buffer in an offset account. With interest rates on the rise, taking proactive steps now could save you a lot of money down the road.
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