The home loan interest rate grenade is set to blow for millions of borrowers this year, despite the Reserve Bank of Australia (RBA) putting the cash rate on hold again today.
Compare the Market’s Economic Director David Koch said many fixed rate borrowers could soon feel the pain of 12 cash rate rises after enjoying ultra-low rates for several years.
“If you’ve had a fixed rate loan, there is a good chance that you haven’t had time to acclimatise to higher interest rates,” Mr Koch said.
“It’s been hard enough for families getting used to the higher cost of living, groceries and power prices.
“For borrowers about to feel the interest rate grenade in one huge hit as their fixed rate expires, it could be a devastating blow.”
Australians with a $750,000 mortgage on a variable rate could already be paying $1,814 more each month than they were at the start of May 2022.
|Mortgage size||Increase in average monthly repayments since the start of May 2022 (4% jump)|
|Reserve Bank Lenders’ Interest Rates. Monthly repayments do not include any reduction in the mortgage balance over time. These calculations assume: An owner-occupied variable interest rate of 2.86% p.a in May 2022; principal and interest (P&I) repayments; cash rate increases are passed on in full; the loan term is 30 years; and there are no monthly fees.|
Mr Koch said the best way to mitigate the interest rate grenade was to find a better rate.
“Ask your lender how much you’re going to be repaying when the fixed rate comes off, so you don’t get blindsided with a ‘back book’ rate,” Mr Koch said.
“Often the best deals are reserved for enticing new customers, so its worth asking your lender if they can do better but be prepared to walk.
“Spend some time comparing offers from different lenders. In some cases, making a switch could save you thousands over the life of your loan.”
A Compare the Market analysis shows the difference between some of the advertised rates was 0.79%.
A person with an owner-occupier $750,000 loan could be saving $383 a month when they switch from a rate of 6.49% to 5.70%.
|Mortgage size||The difference between variable rates in the market|
|Minimum monthly repayments on variable P&I rate of 5.70%||Minimum monthly repayments on variable P&I rate of 6.49%||Difference in monthly minimum repayments|
|Monthly repayments do not include any reduction in the mortgage balance over time. These calculations assume: An owner-occupied variable interest rate of 5.69% compared to 6.344% p.a; principal and interest (P&I) repayments; the loan term is 30 years; and there are no monthly fees.|
For more information, please contact:
Natasha Innes | 0416 705 514 | [email protected]
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