The Reserve Bank of Australia (RBA) is expected to raise the cash rate again tomorrow, after hiking for the first time in 12 years last month.
Research from RateCity found that if the RBA hiked the cash rate by 0.25 per cent tomorrow, the average owner-occupier with a $500,000 debt and 25 years remaining on their mortgage would see their monthly repayments rise by a further $66.
If the RBA hikes by 0.40 percentage points tomorrow, as some economists are forecasting, their repayments would rise by $106 a month.
There are a number of scenarios that could happen tomorrow, depending on the size of the loan and the size of the rate hike.
“The RBA has a lot to consider this month, with new - but, in some cases, conflicting - data to weigh up,” RateCity research director Sally Tindall said.
“A rate hike again this month is a near certainty, however, how high the RBA goes remains to be seen.
“The board may stick to a standard 0.25-percentage-point hike, but there’s every chance it will be more hard hitting.”
Tindall said with the rising cost of petrol and grocery prices, the case for a 0.4 per cent hike was actually quite strong.
“Central banks across the world are struggling to get on top of inflation, and the Reserve Bank of Australia does not want to be one of them. The board will want to nip this in the bud,” she said.
“The RBA is likely to take a rapid-fire approach to rate hikes over the next six-12 months.”
Rates could hit 1.75 per cent by Christmas
Rate hikes are not expected to end tomorrow, with the RBA forecasting rates could hit 1.75 per cent by the end of the year and 2.5 per cent by the end of 2023.
If that happens, the same borrower with a $500,000 loan balance could see their monthly repayments rise, in total, by $652 a month by Christmas next year.
“If the cash rate gets to 1.75 per cent by Christmas, the average home loan customer with $500,000 owing could see their monthly repayments rise by $442 in total,” Tindall said.
“By Christmas next year, they could be $652 more a month in total.”
End of 2022(cash rate 1.75%)
End of 2023(cash rate 2.50%)
How to cope with higher mortgage repayments
A new Canstar survey of 2,334 Australian adults found 55 per cent couldn’t afford or didn’t even know if they could afford home loan repayments or rent if the cost was to rise by around one third.
“Consumers are being hit with higher costs from every side right now,” Canstar editor-at-large Effie Zahos said.
“Australians are seeing price hikes across several household bills.
“When you get hit with higher costs on just about every household bill, juggling the extra costs can become difficult as consumers need to be efficient with where they redirect any savings.”
In terms of getting a better deal, looking to switch your home loan to a different bank may be the best option.
Often banks will have good deals for those looking to make the change so, while it may seem like an effort, it could save you thousands.
“A lot of people think just because rates are on the rise, it’s not a good time to renegotiate their home loan but, in many cases, that’s just not true,” Tindall said.
“Banks still need to keep new business rolling through the door, and they’re typically doing it by offering sharper discounts to refinancers willing to switch lenders.”