RBA interest rates: Here is what the interest rate rise means for your home loan

The Reserve Bank’s second rate hike in as many months is expected to add about $133 a month to the cost of the average Aussie mortgage.

At its monthly meeting on Tuesday, the central bank lifted the cash rate target by 0.50 percentage points, taking the cash rate to 0.85 percent.

If banks pass on the hike in full, the average borrower with a $500,000 mortgage and 25 years left to pay on their loan can expect their monthly repayments to rise by $133, according to RateCity.

If last month’s rate rise were also factored in, the repayment increases would add $197.

Tuesday’s rate rise came after the RBA hiked the cash rate from a record-low 0.1 percent to 0.35 percent in May, the first rise since 2010.

Under RateCity’s calculations, the June rise would add $80 to the monthly repayments of a $300,000 loan, $106 for a $400,000 loan, and $159 for a $600,000 loan.

A $750,000 loan would add $199 to repayments, and for a $1 million loan, $265.

The figures are based on an owner-occupier paying principal and interest with 25 years remaining.

In his statement, Reserve Bank Governor Philip Lowe said the rate increase would help cut inflation in Australia, which had significantly increased and was higher than expected.

Camera IconThe central bank noted house prices had already fallen in some markets. NCA NewsWire / John Gass Credit: News Corp Australia

Global factors, including Covid-related disruptions to supply chains and the war in Ukraine, accounted for much of the rise in inflation.

Local factors, including a tight labor market, added to upward pressure on prices, and this year’s floods also caused some costs to increase.

Shortly, inflation would also likely be higher than expected a month ago due to higher gas and electricity prices and fuel costs, Mr. Lowe said.

home loan

“Today’s increase in interest rates will assist with the return of inflation to target over time,” Mr. Lowe said.

“Housing prices have declined in some markets over recent months but remain more than 25 percent higher than before the pandemic, supporting household wealth and spending.”

Camera IconGovernor Philip Lowe said the hike would help get inflation to target. NCA NewsWire / Jeremy Piper Credit: News Corp Australia

Mr. Lowe hinted further hikes were likely in the months ahead, with the size and timing of further rises guided by the outlook for inflation and the jobs market.

RateCity.com.au research director Sally Tindall described the June rise in repayments as “relatively moderate” but warned homeowners to prepare for sizeable hikes in coming months.

Camera IconThe Reserve Bank of Australia board has raised the cash rate to 0.85 percent. Credit: AAP

“These rate hikes aren’t going to cure Australia’s inflation woes magically,” Ms. Tindall said.

“The RBA will need to hike again, potentially as early as next month, and from there, they could continue to come thick and fast to get inflation under control.

“Governor Lowe has indicated the neutral cash rate could be around 2.5 percent. If we get there by Christmas next year, the average borrower with a $500,000 debt could see their repayments rise by $652.

“That’s like blowing two car tires every month and having to replace them.”

Camera IconIn the near future, inflation will likely be higher than was expected a month ago. Credit: News Corp Australia

Ms. Tindall said some families would struggle to meet higher repayments over the next two years.

“It’s not going to be pretty, particularly against the backdrop of soaring prices for everyday essentials such as food, petrol, and energy,” she said.

She advised homeowners to work out the shape of their mortgage by Christmas next year and to take action now if they believed they could not meet those repayments.

“Just because rates are on the rise doesn’t mean it’s a bad time to refinance,” she said.

“If you live in the home you own with a steady job and a good track record of paying down your debt, you should still be in the driver’s seat when it comes to rates if you’re prepared to refinance or at least haggle with your current lender.”

According to the Australian Bureau of Statistics, in April 2022, average loan sizes for owner-occupier dwellings (including construction and the purchase of new and existing homes) rose 1.9 percent nationally to $611,000.

Bella E. McMahon
I am a freelance writer who started blogging in college. I am fascinated by human nature, politics, culture, technology, and pop culture. In addition to my writing, I enjoy exploring new places, trying out new things, and engaging in conversations with new people. Some of my favorite hobbies are reading, playing music, making crafts, writing, traveling, and spending time with my family.