The Reserve Bank of Australia (RBA) has increased the official cash rate by 25 basis points, taking it to 4.35%. So just how much will this year’s Melbourne Cup day rate hike increase your monthly repayments?
Some more tough news for mortgage holders around the country today.
Despite the official cash rate being on hold since June (and many hoping it would stay that way), the RBA has decided to press ahead with a second consecutive Melbourne Cup day rate rise in an attempt to rein in inflation.
This means we’ve now had 13 rate hikes in 18 months since 1 May 2022, and it takes the official cash rate to its highest level since November 2011.
It also happens to be the first rate hike under new RBA Governor Michele Bullock, who commenced in the role in September.
So why did the RBA raise the cash rate?
Governor Bullock said while inflation in Australia had passed its peak, it was still too high and was proving more persistent than expected a few months ago.
“While goods price inflation has eased further, the prices of many services are continuing to rise briskly,” she said.
“While the central forecast is for CPI inflation to continue to decline, progress looks to be slower than earlier expected.”
Governor Bullock added the RBA Board judged an increase in interest rates was warranted today to be more assured that inflation would return to target in a reasonable timeframe.
“If high inflation were to become entrenched in people’s expectations, it would be much more costly to reduce later, involving even higher interest rates and a larger rise in unemployment,” she said.
How much could this latest hike increase your mortgage repayments?
If you’re on a variable-rate home loan, the banks will likely be increasing the interest rate on it very shortly.
For an owner-occupier with a 25-year loan of $500,000 paying principal and interest, this month’s 25 basis point increase means your monthly repayments could go up by about $76 a month.
That’s an extra $1,211 a month on your mortgage compared to 1 May 2022.
If you have a $750,000 loan, repayments will likely increase by about $114 a month, up $1,816 from 1 May 2022.
Meanwhile, a $1 million loan will increase by about $152 a month, up about $2,422 from 1 May 2022.
What can you do?
Are you feeling the pinch? You’re not alone. Many households around the country are feeling the effects of 14 rate hikes in 18 months.
There are also lots of people on fixed-rate home loans wondering what options will be available to them once their fixed-rate period ends.
Some options we can help you explore include refinancing (which could mean increasing the length of your loan and decreasing monthly repayments), debt consolidation, or building up a cash buffer in an offset account.
If you’re keen to switch and save, get in touch with one of our local specialists today. Understanding your options can start with a simple phone, web, or in person discussion.
Check out our guide on home loan refinancing!
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This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice.