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CBA’s major rate hike forecast: How this could impact your mortgage

·3-min read
House in Victoria and CBA branch
CBA expects the cash rate to hit 2.60 per cent by November, according to its new predictions. (Source: Getty)

Some mortgage holders are in for sharp increases in their repayments if the Commonwealth Bank of Australia's (CBA’s) updated cash rate predictions are realised.

Australia’s biggest bank updated its forecasts for interest rate hikes yesterday in light of the strong labour market data released this week as well as its observations of how central banks around the world were responding to inflationary pressures.

CBA now expects the Reserve Bank of Australia (RBA) to make 0.50 percentage point hikes in both August and September, followed by a 0.25 hike in November.

This brings its prediction forward to a 2.60 per cent cash rate by November. The bank previously expected the cash rate to get to 2.10 per cent by that month.

Under this scenario, RateCity analysis found that someone with a $500,000 mortgage in May, before the hikes began, could see their monthly repayments rise by $687 in total.

That would increase by a total of $1,373 for someone with a $1 million mortgage.

cash rate
Based on an owner-occupier paying principal and interest with 25 years remaining. Starting rate is the RBA average existing owner-occupier variable rate of 2.86 per cent on 1 May. (Source: RateCity)

What the other big banks are forecasting

The other major banks are also predicting the cash rate will reach 2.60 per cent or higher, but not until later.

Westpac and NAB both expect a 0.50 per cent rise in August, and predict the cash rate to get to 2.60 per cent by February 2023, according to RateCity.

ANZ is also forecasting a 0.50 per cent rise in August, and expects the cash rate to reach 3.10 per cent by February 2024.

“Borrowers need to strap in for one of the fastest rises to the cash rate in our history,” RateCity research director Sally Tindall said.

“CBA now believes the cash rate could hit 2.60 per cent by November – that would be a rise of 2.50 percentage points in the space of seven months,” she said

She said the last time the RBA hiked the cash rate that quickly was in 1994, when the central bank increased rates by 2.75 per cent in just five months.

“Central banks around the world are hiking furiously to curb inflation,” Tindall said.

“While there are a number of domestic factors at play here in Australia, it’s hard to see the RBA taking its foot off the accelerator at a time when its counterparts are going full throttle.”

She said the rate hikes were putting pressure on mortgage holders.

“Some variable rate borrowers may find their interest rate could double by the end of the year from what they were on before the RBA hikes began in May,” she said.

“If you don’t think you’ll be able to afford your monthly mortgage repayments by Christmas, take action now.”

Tindall said refinancing to a lower mortgage rate could be one of the most effective ways to take the pressure off your budget.

“Just be mindful of the fact that as rates rise, it will become harder to refinance, particularly if money is already tight, as you might not pass the banks’ stress tests on a significantly higher rate,” she said.

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