The RBA has hiked the official cash rate by 0.50%, more than the usual 0.25%, in response to increased inflationary pressure in Australia yesterday.
This rate increase is the second month in a row that the RBA has hiked rates after keeping them at a record low of 0.10% for nearly ten years. RBA Governor Philip Lowe stated that a “larger than expected 0.50% cash rate hike is due to inflation in Australia having “increased significantly”.
“Given the current inflation pressures in the economy, and the still very low level of interest rates, the Board decided to move by 50 basis points today,” said Governor Lowe.
“Higher prices for electricity and gas and recent increases in petrol prices mean that, in the near term, inflation is likely to be higher than was expected a month ago.”
Unless you have a fixed-rate mortgage loan, banks will likely follow the RBA’s lead and increase the interest rate on your home loan soon.
Some banks may respond to the cash rate increase differently than others, so your monthly mortgage repayments will depend on several factors, such as the cash rate increase and the size of your mortgage. Therefore, it is important to check with your bank to see how your repayments may be affected before making any decisions.
How much more will your mortgage loan cost each month?
Let’s say you are an owner-occupier with a 25-year home loan of $500,000 (paying principal and interest). If your bank increases interest rates by the 50 basis points to 0.85%, your monthly mortgage repayments could increase by around $133 a month.
If you have a loan of $750,000, your repayments will likely increase by about $200 a month. If you have a loan of $1 million, your repayments will likely increase by about $265 a month.
The RBA has indicated there could be further interest rate increases before the end of the year. Even as early as July with a rise of 2% by the end of the year.
Are you worried about the increase in your monthly mortgage loan repayments? Contact the team at Broad Finance to discuss your loan options. We can discuss options such as refinancing or fixing your interest rate to protect you from any future rate rises.
Disclaimer: The information in this article is general in nature and is presented for informative purposes only. It is not intended to constitute tax or financial advice, whether general or personal. It is also not intended to imply any recommendation or opinion about financial products or circumstances. Readers should consider their own individual situations before taking any action and seek professional advice.