Melbourne Cup used to be the race that stopped the nation, but this year all eyes were on the Reserve Bank as it saddled borrowers with a fifth 0.25% rate hike – piling hundreds of dollars onto mortgage pain, according to Compare the Market.
On an average loan of $731,000, each 0.25% hike has added around $114 to monthly repayments. After five hikes, borrowers will need to find an extra $584 a month compared with the start of the year.
If the full increase applied for 12 months, those borrowers would spend roughly $7,000 more on their repayments. Instead of chipping away at the principal, that money would be eaten up by interest.
Impact of rate rises on Australian mortgage repayments
| Loan size | Monthly impact of a 0.25% rate increase | Monthly impact of x2 0.25% rate increases (0.50%) | Monthly impact of x3 0.25% rate increases (0.75%) | Monthly impact of x4 0.25% rate increases (1%) | Monthly impact of x5 0.25% rate increases (1.25%) |
| $500,000 | $78 | $157 | $237 | $318 | $399 |
| $600,000 | $94 | $188 | $284 | $381 | $479 |
| $750,000 | $117 | $235 | $355 | $476 | $599 |
| $900,000 | $140 | $282 | $426 | $572 | $719 |
| $1,000,000 | $156 | $314 | $473 | $635 | $799 |
| *Calculations assume an owner-occupied loan with a variable interest rate starting at 5.25% that is increased by 0.25% a month. It assumes a 30-year loan term, with no ongoing fees. This does not take into account the reduction of the loan balance over time. | |||||
Full-year impact of rate rises on Australian mortgage repayments over 12 months
| Loan size | 1 hike (0.25%) | 2 hikes (0.50%) | 3 hikes (0.75%) | 4 hikes (1.00%) | 5 hikes (1.25%) |
| $500,000 | $936 | $1,884 | $2,844 | $3,816 | $4,788 |
| $600,000 | $1,128 | $2,256 | $3,408 | $4,572 | $5,748 |
| $750,000 | $1,404 | $2,820 | $4,260 | $5,712 | $7,188 |
| $900,000 | $1,680 | $3,384 | $5,112 | $6,864 | $8,628 |
| $1,000,000 | $1,872 | $3,768 | $5,676 | $7,620 | $9,588 |
| *Annual impacts are calculated by multiplying the monthly repayment impacts in the table above by 12. Figures assume each cumulative rate increase applies for the full 12 months. | |||||
Compare the Market’s Economic Director David Koch said this was an extraordinary burden on everyday Aussies trying to pay off their loans and attain the dream of homeownership.
“The Reserve Bank warned us that this could happen if inflation didn’t show some sign of stablising or easing – despite the fact that consumer confidence is almost at a record lows, business confidence is at record lows and unemployment is increasing.
“It is really hard to see is that homeowners are doing all the heavy lifting by shouldering these rate hikes, but to sympathise with the RBA – this is really the only lever they’ve got.
“That’s why I think governments have got to get on board and start helping us fight inflation. They can’t just continue being their own island, spending up big and fueling demand. And that’s governments at all levels: local, state and federal.”
Mr Koch said that while Aussies couldn’t control the direction of the cash rate, they could ease the pressure on their repayments by keeping on top of their home loan interest rate.
Find out more about comparing interest rates
“We tend to think of mortgage pain in terms of our monthly repayments, but let’s zoom out and look at what an extra 0.25% means over the life of a 30-year loan,” Mr Koch said.
“If you’re on a rate of 6.5%, you could end up spending $43,029 more on interest than you would on a rate of 6.25% – and that’s for an average-sized.”
