The Reserve Bank of Australia (RBA) has increased the official cash rate by 50 basis points to 0.85%. How much extra should you expect to pay on your home loan?
Today’s cash rate hike is the second in as many months, with the RBA last month increasing the official cash rate from a record-low 0.10% to 0.35% amid high inflation concerns.
Before then, we hadn’t had a cash rate hike since November 2010.
Now usually, the RBA increases or decreases the cash rate by 0.25%.
However, today’s larger than expected 0.50% cash rate hike is due to inflation in Australia having “increased significantly”, said RBA Governor Philip Lowe in a statement.
“Given the current inflation pressures in the economy, and the still very low level of interest rates, the Board decided to move by 50 basis points today,” said Governor Lowe.
“Higher prices for electricity and gas and recent increases in petrol prices mean that, in the near term, inflation is likely to be higher than was expected a month ago.”
How much more will your mortgage cost each month?
Unless you’re on a fixed-rate mortgage, it’s extremely likely the banks will follow the RBA’s lead and increase the interest rate on your home loan very soon.
How much your repayments will go up each month depends on a number of factors, including how your particular bank responds to the cash rate increase and the size of your mortgage.
But 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 to 0.85% means your monthly repayments could increase by about $133 a month.
If you have a loan of $750,0000, repayments will likely increase by about $200 a month, and a $1 million loan is expected to cost an extra $265 a month.
If you’re worried about your monthly repayments, get in touch
It’s very likely that we’ll see more RBA cash rate hikes before the year is out.
In fact, the RBA has basically said as much.
So if you’re worried about what interest rate rises might mean for your monthly budget, feel free to get in touch with us today to explore some options.
This could include refinancing or locking in a fixed rate ahead of any other future rate hikes.
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