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RBA’s third straight cash rate hike hits borrowers hard: What can you do?


Your home loan rate is going to get even more expensive, and the worst is yet to come.

The Reserve Bank of Australia (RBA) has raised the official cash rate once again. Most experts saw this coming and the RBA wasn't exactly keeping it a secret.

The official cash rate is now 1.35%.

This is now the third straight month the cash rate has increased. In April the cash rate was just 0.10%. The RBA raised the cash rate by 25 percentage points in May and again by 50 percentage points in June.

Today's rate rise is an expensive decision for the average Australian borrower. If you have a variable home loan with a 2.60% interest rate today, it will now most likely rise to 3.10% in the coming days or weeks.

If you'd borrowed $500,000 over 30 years, this means your monthly repayments would jump from $2,001 to $2,135.

That's $134 a month right there. And if you factor in the rate rises of the last few months you're looking at hefty increases. And that's before you think about other rising costs of living that are making life tough for everyone.

What is the cash rate?

The official cash rate target affects lenders' borrowing costs. Banks don't always have the cash on hand to fund your home loan, so they often borrow money from other places (or lend to other institutions on the market). The rate charged on this borrowing and lending is what the RBA calls the rate for "unsecured overnight loans between banks".

In practice, when the cash rate rises, lenders are quick to pass the increase onto borrowers who currently have variable interest rate loans.

Fixed rate loans for new borrowers rise as well, although these loans are funded differently. Borrowers who already fixed their interest rate are fine for now, because those rates don't change by definition.

What can borrowers do to alleviate today's cash rate decision?

Most borrowers are facing higher rates now. But that doesn't mean you can't get a better deal. There's always a lower rate on the market. And many lenders offer their lowest rates to new customers (which is incredibly annoying for their existing customers).

Here are some simple tips:

  1. Give it a couple of days. Lenders won't jack your rate up right now. They'll play it cool for a few days, assess their own funding sources and then announce their rate decisions.
  2. Check your interest rate. It's always good to start with your current rate so you know exactly what you're being charged.
  3. Check your lender's website. You might be shocked to find your lender is offering a better deal for new borrowers with an identical loan to yours (it can happen to anyone, even the mortgage experts). Call your lender and ask for the same rate as new borrowers.
  4. Compare and get ready to switch. Your current lender might happily give you a better deal. But it's really good to check rates from across the market anyway. You could find a much better deal. Read our home loan refinancing guide to see how easy switching can be.
  5. Contact your bank. If you're genuinely worried about your ability to manage these increases, contact your bank and discuss the options. You may be eligible for a repayment holiday, or have access to funds in redraw that could help you manage these increaes.

Looking for a better home loan? Check out some of the market's lowest home loan rates.

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