RBA hikes the cash rate again: How much is it gonna hurt you?
Your home loan repayments are going to rise by 0.5 percentage points.
The Reserve Bank of Australia (RBA) has lifted the cash rate to 0.85%. The rate is bad news for borrowers but it was no surprise: 86% of Finder's experts predicted the move in our RBA Cash Rate survey.
Here's why today's decisions hits Australian borrowers right in the wallet:
- Banks often lend money to each other on short notice to fund loans. The official cash rate is a benchmark determining these borrowing costs for lenders.
- Lenders pass higher borrowing costs onto customers in the form of higher interest rates on variable home loans.
- Higher interest rates mean your monthly home loan repayments increase.
With Australians borrowing more and more for their home loans every year, today's cash rate rise – the second in 2 months – is a big deal.
The average owner-occupier borrows around $600,000, according to the ABS. Assuming you had a competitive variable interest rate of 2.30% (over 30 years) and your lender passed on the full cash rate rise, your rate would now be 2.80%.
Here's what that looks like in dollar terms:
- Your monthly repayments at 2.30% = $2,308
- Your monthly repayments at 2.80% = $2,465
That's a hike of $157 a month or $1,884 a year. Borrowers with larger mortgages or less competitive interest rates will see even bigger increases.
Prepare for life in a world of rising interest rates
This won't be the end of interest rate rises. 29% of Finder's RBA experts predict at least 2 more cash rate rises in 2022.
The cash rate may end up at around 2.00% or higher. That's a big jump from its recent historic low of 0.10%.
If you're worried about rising interest rates, there are several steps you can take to keep your head above water:
- Refinance your home loan. If your lender has just increased your interest rate (and it might not make any decision for a few days), you should look at other offers on the market and see if you can get a better deal by refinancing. This is something every borrower should do from time to time.
- Build up savings. Interest rates are rising but still quite low compared to most of recent history. It's a good time to build up some savings to help you cover rising repayments in future. You could put savings into an offset account for maximum flexibility and to help you reduce interest charges.
- Take advantage of high interest rate savings products. Interest rates on high interest savings accounts should rise as the cash rate rises. So it might be worth looking at a high interest account as a way to boost your savings. You could also look at ETFs or other investment products.
Need help saving money? Check out all our money-saving tips.