How this rate increase could affect your mortgage repayments
The Reserve Bank (RBA) has raised the nation’s official cash rate (OCR) for the third month in a row in an effort to curb rising inflation.
At the end of the bank’s July policy meeting, the bank lifted the cash rate by 0.50%, raising the rate to 1.35%. This marks a 1.25% increase in the OCR since April in what is the fastest series of moves in over two decades.
RBA Governor Philip Lowe has said in a statement that the board, “expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead” and a number of market analysts have stated they expect the cash rate to rise to 2% or more in the coming months.
Find out how a 0.50% interest rate increase would affect your home loan repayments using our simple Mortgage Repayment Calculator.
What does this mean for home loans?
Anyone paying a home loan with variable rates will almost inevitably see their interest rates going up, which means more expensive mortgage repayments.
Last time the RBA raised the OCR, lenders were quick to pass on the full increase to their customers, and there’s little reason to suggest that this time will be any different.
With that mind, let’s take a look at how this rate hike might affect borrowers with an average new home loan size. For the sake of the following calculation, we are using the example of a borrower who owns and lives in their home, is paying principal and interest and has 30 years remaining on their loan. The example assumes a variable interest rate of 2.86% (average from April RBA figures). It doesn’t include additional fees, or any principal paid down over time.
The table below assumes a combined interest rate increase of 1.25% from April 2022 to July 2022.
| State | Average new loan size (May) | Repayment increase |
|---|---|---|
| National | $615,310 | $428.58 |
| NSW | $780,762 | $544.09 |
| Victoria | $643,067 | $448.14 |
| Queensland | $536,289 | $373.73 |
| South Australia | $459,262 | $320.05 |
| Western Australia | $466,846 | $325.33 |
| Tasmania | $445,781 | $310.65 |
| Northern Territory | $410,730 | $286.23 |
| ACT | $599,898 | $418.05 |
Source: ABS lending indicators average new home loan size (seasonally adjusted); May 2022
Need help calculating your repayments? Use our mortgage repayment calculator. Just remember to add 0.50% to your current rate.
If you’re concerned about your ability to manage your repayments and manage your budget, feel free to get in touch and book a no-obligation home loan review.
Nectar brokers have access to over 30 different lenders, so if your current bank won’t offer you a better deal, there might be others who will!