The Reserve Bank of Australia (RBA) has confirmed it is lifting the cash rate for the sixth consecutive month, with a 25 basis point increase following October’s Board meeting.
The cash rate is now at a nine-year high following a rapid 250 basis points increase in just 153 days, as the RBA battles to curb rising inflation.
It comes as Compare the Market’s latest research revealed just 10% of Australian mortgage holders have shopped around for a better home loan rate in the last three months despite 50 per cent of homeowners being concerned about rising rates.
The data also revealed a staggering 92% of Australians are concerned about a possible recession in the next 12 months.
Compare the Market’s General Manager of Money Stephen Zeller said: “While a lot of Australian homeowners would have been expecting for a bigger whack this month, no one should still take this hit lying down.
“Everyone should continue to put their rate under the microscope otherwise people could be paying extra interest unnecessarily.
“Complacency kills here. Assess your current financial situation now – the value of your property, and the composition of your debt. Look for the most cost-effective structure to ride out the wave over the next little while.
“There are some competitive offers available right now as institutions fight for a share of refinancers with various institutions advertising cash back, frequent flyer points as well as other bundles. But don’t get caught in the honey trap – check the rate is competitive before anything else.
“The advertised rates are moving fast – some offers that were there yesterday are gone today, so it pays to do your research,” Zeller said.
The 25 basis point increase was an important marker for the RBA, according to Zeller, with inflation predicted to peak later this year.
“The cash rate hasn’t been this high since July 2013 so this is unprecedented in terms of consecutive increases but the RBA know they have to hit the inflation handbrake – and soon.
“The concern is though that if they push too hard, the economy could be on the brink – but don’t push hard enough and we will be in this pain for longer.
“It will take time to get back to the RBA’s target range, maybe even another 12 months, but another rate rise next month will unquestionably start to put the brakes on consumer spending,” Mr Zeller said.
For Australians on a variable rate home loan, below is 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 4.75% p.a. | |
| Increase in monthly minimum repayments | Increase over the life of the loan | |
| $500,000 | +$75 | +$26,932 |
| $600,000 | +$90 | +$32,318 |
| $750,000 | +$112 | +$40,397 |
| $900,000 | +$135 | +$48,477 |
| $1,000,000 | +$150 | +$53,863 |
| Monthly repayments do not include any reduction in the mortgage balance over time. These calculations assume: An owner-occupied variable interest rate of 4.5% 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 mortgage will likely soon be paying $870 more each month than they were at the start of May, following a 250 basis point jump in just five months.
| Mortgage size | Increase in average monthly repayments since the start of May (250 basis points) |
| $500,000 | +$725 |
| $600,000 | +$870 |
| $750,000 | +$1,087 |
| $900,000 | +$1,305 |
| $1,000,000 | +$1,449 |
| 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; 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. | |
“As well as their home loan, every Australian should be reviewing their household living costs such as energy plans and their insurances, to ensure they have the most suitable offering available at the best possible rate.
“It’s one of the only things we can do to help alleviate the pressure of high living expenses smashing household budgets, and get on the front foot of what will for some be a really challenging time through the back end of 2022 and into next year,” Mr Zeller said.
For more information, please contact:
Chris Ford | 0411 560 116 | [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 personal finance products from a range of providers. Our easy-to-use comparison tool enables consumers to find products that best suit their needs and back pocket.
