The Reserve Bank of Australia (RBA) has hiked the official cash rate by another 50 basis points to 1.35% amid continuing inflation pressures. How will the third cash rate increase in three months affect your monthly mortgage repayments? Soho explores.
At the beginning of May this year, the cash rate was 0.10%.
As of today, the RBA cash rate has been increased it to 1.35% – the second double-barrel 0.50% hike in a row.
RBA Governor Philip Lowe stated that the reason for this cash rate hike was in line with rising inflation which is currently occurring in Australia and across the globe.
“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.”
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How much more will this latest rate rise cost each month?
This will affect fixed-rate mortgages and variable rate mortgages differently. So if you’re on a variable, lenders will take cues from RBA and also increase the interest rates on your home loan.
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 $750,0000 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 only if we look at this month’s most recent cash rate hike.
Let’s take a look at how much more your future repayments will be, 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, get in touch
As we explained, unless you’re on a fixed rate, your monthly mortgage repayments will probably have gone up quite a bit since the end of April.
And we’ll likely see a few more RBA cash rate increases before the end of the year.
So if you feel concerned about your mortgage repayments because of these changes, get in touch with Soho Home Loans.
We can assist you in exploring different options include refinancing (which could include increasing the length of your loan to lower monthly repayments), debt consolidation, or building up a bit of a buffer in an offset account ahead of more rate hikes.
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