‘Scrambling’: Why your home loan could cost $21,000 more
Australian home owners could be paying an extra $20,993 over the life of their loan if banks decide to increase variable home loan rates in 2021, according to new data.
More than half of experts and economists surveyed by Finder believe banks will increase variable home loan rates next year, despite the Reserve Bank of Australia predicting the official cash rate to remain at 0.25 per cent for the foreseeable future.
When asked when Aussies could expect banks to make the move, half of the respondents said banks were likely to announce out-of-cycle rate hikes during the first half of 2021.
“Banking profits have nosedived off the back of billions of dollars worth of loan deferrals, a shrinking pool of first-time buyers, low-interest rates and minimal credit growth,” said Finder insights manager Graham Cooke.
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“This may send banks scrambling to recoup lost funds by pushing up home loan rates to absorb some of these costs, which will come at a detriment to mortgage customers.”
Home buyers considering a variable mortgage should be factoring in a repayment increase of 2 to 3 per cent to their budget, Cooke said.
The average interest rate across all variable products on the market is currently 4.06 per cent, meaning on a $400,000 loan, an increase of 25 basis points could cost around $58 per month, or a whopping $20,993 over 30 years.
On the same loan, an increase of 50 basis points could cost Aussies more than $117 more per month, or $42,302 over 30 years.
If your loan is around the $700,000 mark, an increase of 25 basis points could see you forking out an extra $102 per month - or a staggering $36,736 over 30 years.
That figure increases to $206 per month if banks hike rates by 50 basis point, or $74,027 over 30 years.
When will interest rates rise?
The majority of experts and economists predict another hold from the RBA in September, saying another cut would not be for several months – and an interest rate rise is unlikely.
"For now the RBA will remain on hold,” AMP Capital economist Shane Oliver said.
“It views the March monetary easing package as continuing to help the economy and the main action now being in fiscal policy.
“There is a significant chance it may cut the cash rate to 0.1 per cent and it may do more aggressive quantitative easing but that would not be for several months.”
Bendigo Bank economist David Robertson said it was likely the RBA would not change rates for at least two years, and BIS Oxford Economics economist Sean Langcake said the cash rate would not increase until mid-late 2023.
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