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RBA lifts cash rate for fifth time: Can you afford the rate hike?

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The average borrower is looking at an extra $186 a month on their home loan repayments.

The Reserve Bank of Australia (RBA) continued its fight against soaring inflation with yet another cash rate rise today.

The official cash rate target affects lenders' borrowing costs. An increase to the cash rate means home loan rates get more expensive for borrowers.

The official cash rate is now 2.35%. In April 2022 it was just 0.10%.

The average Australian borrower has a $609,785 home loan. Assuming a 30-year loan term and the August average variable rate (according to the RBA's own figures) of 4.70%, your repayments would be $3,162 a month.

Adding on today's 50 basis point rate rise, you'd now be looking at a rate of 5.20%. This would change your repayments to $3,348 a month.

That's an extra $186 a month.

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That's a big rate rise! What should I do?

Australians are getting slammed by rising living costs across the board. Being worried about managing your mortgage is understandable.

But most of us do have a few options to cut costs and find ways to save by switching to cheaper products.

Here are some steps you can take to handle another rise to your home loan repayments:

  1. Wait for your lender to make a move. Most lenders won't raise rates today. Some will take days or even weeks to pass on today's rate rise. Your lender should notify you of your change or rate.
  2. In the meantime, budget for higher repayments. If you know it's coming, prepare for higher repayments by looking at your monthly spending. See if you can identify any ways you can cut back. This should help reduce the burden of higher repayments.
  3. Ask your lender for a lower rate. Check your lender's website and see if it has a better deal for new borrowers (many do).
  4. Whether your lender can offer you a better deal or not, it's also a good time to look around for a better deal. Compare rates from various lenders and switch to a lower interest rate.
  5. You can also take advantage of rising rates. A higher home loan rate is bad news, but rates on high interest savings accounts are increasing. This means you can earn a little more interest on your savings.

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