RateCity.com.au’s analysis of technical assumptions in the RBA minutes shows the central bank expects the cash rate could rise to 1.75% by the end of 2022 and 2.5% d by the end of 2023.
If that happens, that means the average variable homeowner with a $500,000 loan over 25 years could be paying $443 more per month than when interest rates were just 0, 1%.
If the cash rate then increases to 2.5% by the end of 2023, that same borrower could pay $651 more than since the rate hikes began.
RateCity.com.au’s research director, Sally Tindall, said while we don’t know the exact timing or scale of the upcoming interest rate hikes, we do know that repayments are about to take place. become more expensive.
“While Governor Lowe said the RBA does not know exactly how high the cash rate will go, or when, what we do know is that there are many more hikes to come over the course of the next year and a half,” Tindall said.
“The average borrower is potentially looking at the full $651 increase in monthly repayments by the end of next year. It’s like buying a new dishwasher every month.”
Tindall recommended borrowers define their worst-case scenario to prepare for changes in the household budget.
“Sit down and figure out what your refunds will look like, even if your rate goes up 3%. If you don’t think you can make those higher repayments, act now,” she advises.
“The longer you wait to make changes, the more difficult you will find yourself.
“Cutting regular expenses, switching to a more competitive home loan, and asking your boss for a raise can inject real, ongoing relief into your budget.”
“A case for a 40 basis point hike 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 modeled above, a 40 basis point hike in June would increase monthly repayments by $106.
Those with loans of $750,000 would see an increase of $159 per month while those with a loan of $1 million would see an increase of $212 per month.
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