Rate hike means you need $180K salary for an average mortgage
Rising RBA rates mean borrowers need to earn at least $180,000 to afford their home loan.
Analysis of the latest cash rate hike shows a shocking reality for many Australian homeowners.
With the rate now at 3.10%, borrowers could be paying 3% more on their home loans than they were at the start of the year.
To put that into monetary terms, on a $500,000 home loan, that amounts to $897 more each month or almost $11,000 extra a year. It's a huge amount on top of an escalating cost of living crisis.
Assuming the new average home loan interest rate of 6.40%, monthly repayments for the average borrower are rising to $3,128 a month.
Finder analysis shows that to comfortably afford that increase, you would need to be earning a minimum income of just over $180,000 a year. To afford a mortgage in April, you would have needed a minimum salary of around $120,000 to service the loan.
Why are interest rates rising?
In his statement, Reserve Bank of Australia (RBA) governor Philip Lowe said that inflation was "too high".
Expecting further increases in inflation, Lowe explained that increasing the cash rate as it has done over the last 8 consecutive months has been "necessary to ensure that the current period of high inflation is only temporary".
"High inflation damages our economy and makes life more difficult for people," he added.
How much worse is it going to get?
Unfortunately, we haven't seen the end of rising rates. Experts predict that the cash rate will continue to rise. Lowe has said as much in his latest cash rate announcement.
"The board expects to increase interest rates further over the period ahead, but it is not on a pre-set course," he said.
Finder surveys economists each month ahead of the RBA announcement. Our experts on average are predicting the cash rate to peak at 4.00%.
If this is the case, the average home loan interest rate would be expected to rise to 7.3%. Monthly repayments would grow to $3,428, meaning an annual home loan repayment of $41,136.
That means the average home loan borrower would now be paying $14,364 more a year than before the rates began to rise.
You'd need to be earning a minimum annual salary of $203,358 to comfortably afford that loan.
How to afford rising repayments
If you're worried about how you'll afford these rising repayments (and you're not alone), there are some steps you can take today to minimise the impact:
Speak to your lender now.
Get ahead of the problem and call your lender to see what they can do to help. They may be able to refinance you onto a lower rate which will reduce your monthly repayments, switch you to an interest-only home loan for 12–24 months or give you a 6-month mortgage holiday.
Compare other home loan rates.
You might be paying much more than you have to. Take a look at other interest rates on the market because you may be able to switch to a lower rate elsewhere. But check that it is worthwhile refinancing once you take into account other fees you may need to pay.
Look at your other expenses.
If more of your money is going towards home loan repayments, look at where you can cut back in other areas. Compare your internet, phone and mobile providers, as well as car and health insurance. Go through your recent grocery receipts and see what you could have done without in your last shop and make sure to cut back on those items next time. Look at your bank statements too and make a note of all those one-off expenses that you didn't really need.
Save what you can in a high-interest savings account.
One benefit of the rising cash rate is that interest rates on savings accounts are also increasing. Put your savings into a high-interest savings account. Your savings account should be well above 4% now.
Consolidate other debts.
If you have any other debts, consider consolidating them into your home loan. This makes repayments easier to manage and reduces your overall debts to increase your odds of approval if you want to refinance.