How Will the Rising Cash Rate Impact Your Mortgage?

How Will the Rising Cash Rate Impact Your Mortgage?

With the Reserve Bank of Australia increasing the cash rate by 25 basis points, the first increase in over 11 years, banks will likely increase variable home loan interest rates to match. Many Australians will find the payments increasing by around 3% in the short-term and potentially more over the next few years, which may well put a strain on your budget.

So, why is this happening, and what does it mean for you?

Put simply; the RBA is raising the cash rate to rein in inflation, which is currently over 5%. By increasing the cash rate, they disincentivise loans and incentivise saving to keep the country’s inflation between 2-3%.

How does this affect you? If you have a variable rate home loan, your bank will be able to pass that increase onto you.

Here’s a brief look at what can change:

The average mortgage in South Australia is $457,493, with an interest rate of 2.09%. (Comparison rate 2.21%)

The monthly payment would be $1,712.00, or $395.00 per week.

With the cash rate up 0.25%, the new rate will be 2.34%. (Comparison rate 2.46%)

That puts your monthly payment up to $1,770.00, or $408.00 per week.

So, the average South Australian will be an additional paying $58.00 a month, or $13.00 a week.

What does that do for your budget? Can that comfortably come out of your savings, or will you need to give up a couple of coffees or maybe a night of Uber Eats?

Since the cash rate was so low to aid people and businesses surviving through the pandemic, many experts have expected this cash rate increase to be on the horizon, though it has been a little earlier than predictions. The RBA has also stated that they’re going to be raising the cash rate in the future to get inflation down under 3%, so it’s vital that you keep informed about its impact on you and your family.

If the cash rate raises three more times, which seems like it could happen over the next six months, your interest rate could be up by 100 basis points or 1.0%. In that case, the average South Australian could be looking at an increase in monthly payments of $181.00.

So now is a great time to start thinking about what you can do to keep your budget in line after a $45.00 per week increase in mortgage payments.

How you can take control of rate movements.

An increasing cash rate can make a substantial difference to your budget and lifestyle, but it doesn’t have to catch you by surprise. Now, more than ever, it’s a great idea to set a comprehensive budget, save money, and pay off your home sooner.
There are many options for how you pay off your home, so it’s always best to speak to your mortgage broker to find out how you can stay ahead of the curve by getting the best deal on your home loan.
If you’d like to use your own figures to calculate how the increased cash rate will affect you and your family, you can use the calculator on my website, which you’ll find here.