It was another bad dose of borrower blues, after the Reserve Bank of Australia (RBA) confirmed its record run of rate rises would continue once again.
At today’s May Board meeting, RBA governor Phillip Lowe confirmed the 25 basis point hike.
The mortgage mayhem all comes exactly 364 days since the first-rate hike of this cycle in May last year, with the cash rate now surging 375 basis points and adding another painful $96 in monthly repayments to a $600,000 loan.
It comes as Compare the Market’s latest survey revealed almost half of Australians aren’t equipped or ready to go into a recession.
More than a quarter said they aren’t prepared and are barely getting by, while 14% said they’re not prepared at all and will face financial setbacks if a recession occurs.
Half of Australians said they are somewhat prepared and have enough savings to see them through and a baffling 3% don’t even know what a recession is.
Compare the Market’s General Manager of Money, Stephen Zeller, said the Board’s decision to raise the cash rate for the eleventh time in 12 months was a necessary evil.
“Even though we can see these aggressive rate increases have had some effect on inflation, we’re still nowhere near the target range of 2-3%,” Mr Zeller said.
“Although it was a necessary evil for the greater good, many borrowers are going to be in a world of pain.
“A person with a $600,000 mortgage could be paying $1,351 more each month than they were at the start of May 2022, so it really does pay to do your research and be prepared for that fixed rate cliff.
For Australians on a variable rate home loan, here’s how a 25 basis point increase in the cash rate, if passed on by the lender in full, would affect monthly repayments:
|Mortgage size||25 basis point increase to 6% p.a.|
|Increase in monthly minimum repayments||Increase over the life of the loan|
|Monthly repayments do not include any reduction in the mortgage balance over time. These calculations assume: An owner-occupied variable interest rate of 5.75% p.a; 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.|
Australians with a $600,000 variable mortgage may soon be paying $1,351 more each month than they were at the start of May 2022, following a 375 basis point jump in just 12 months.
|Mortgage size||Increase in average monthly repayments since the start of May 2022 (375 basis points)|
|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.|
“But these rate rises are just the tip of the iceberg as homeowners are being hit with even higher costs with the cost of groceries, fuel and energy all soaring,” Mr Zeller said.
“With the home loan interest rate grenade is set to blow for many borrowers this year, many Aussies will be looking to refinance.
“If you’re on a fixed rate due to expire, you should be looking for the most competitive rate available and planning to make the switch or negotiating a lower rate with your current lender at least a month beforehand.
“In a time where the cost of living is so high, the smart choice isn’t to stay complacent and be loyal. Using comparison websites can save you a lot of money by helping you to find a lower rate.
“There’s a number of cashback offers available right now that are attached to competitive rates.
“If you’re not on a competitive rate, it’s time to consider switching – you could be saving thousands of dollars over the life of your loan”.
*Survey of 1,010 Australians, conducted in April 2023.
For more information, please contact:
Natasha Innes | 0416 705 514 | [email protected]
Compare the Market is a comparison service that takes the hard work out of shopping around. We make it Simples for Australians to quickly and easily compare and buy insurance, energy, travel and home loans products from a range of providers. Our easy-to-use comparison tool helps you look for a range of products that may suit your needs and benefit your back pocket.