The hits just keep coming for mortgage holders, with the Reserve Bank of Australia (RBA) today raising the cash rate for a third time this year to 4.35%. If you’re starting to struggle with your mortgage repayments, here’s how you can potentially take action.
Today’s 0.25% cash rate increase brings us in line with the 2024 cash rate peak of 4.35% – which was the highest it had climbed to since December 2011.
The RBA’s Monetary Policy Board said in a statement that the conflict in the Middle East had resulted in sharply higher fuel and related commodity prices, which were already adding to inflation.
“There are early signs that many firms experiencing cost pressures are looking to increase prices of their goods and services. Short-term measures of inflation expectations have also risen,” the Board said.
How could this affect your monthly mortgage repayments?
Unless you’re on a fixed-rate mortgage, your bank will likely soon follow the RBA’s lead and increase the interest rate on your variable home loan.
For an owner-occupier with a 25-year loan of $500,000 paying principal and interest, this month’s 25 basis point rate hike means your monthly repayments could increase by about $77 a month.
That equals about $924 a year. Or $2772 annually if you also include the other two rate hikes (yikes!).
If you have a $750,000 loan, your minimum monthly mortgage repayments may increase by about $115 a month. That’s $1380 per year, or $4140 including the previous two rises.
Meanwhile, a $1 million loan could go up by about $154 a month. That’s $1848 a year, and $5544 if you include the February and March hikes.
This all assumes that your lender automatically passes on the full 25 basis point increase to your home loan.
The only (potentially) relieving thing to note from all this is that when interest rates came down from the recent cycle peak of 4.35%, many banks around the country kept borrowers on the same monthly repayment amount – meaning they paid more off the principal of their home loan each month rather than the interest.
If this is the case for you, your monthly repayment amount (likely) won’t increase with this latest rate hike – it’s just that more of your repayment (0.25%) will go towards the interest on your loan, rather than the principal.
To find out what your lender is doing with your loan, get in touch with us in a few days once the dust has settled and the banks have announced their next moves.
Need to discuss your home loan?
The RBA decision is another tough pill to swallow for mortgage holders on a variable rate. It hurts, but there are still some steps you could potentially take to help offset the rate hike.
If it’s been some time since your last home loan review, now might be a good time to check in.
There’s a chance you might be able to improve your situation by switching to a lender on a lower-rate home loan – potentially giving you a rate cut of your own.
Other options we could help you explore include renegotiating with your current lender, switching to interest-only for a short period of time, or debt consolidation.
Every household is unique, and we’re committed to helping you find a solution that fits your needs.
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