labelCategory: RBA Cash Rate
The Reserve Bank of Australia (RBA) increased the cash rate by 25 basis points today, taking it to 3.10%.
How Does The Cash Rate Increase Affect My Interest Rate?
Lenders add a margin to the official cash rate to determine the variable interest rate they offer to customers. So if you have a variable interest rate, it will almost certainly go up with the cash rate increase.
How Much Is My Monthly Repayment Going to Increase?
The following chart shows how much the extra quarter percentage point in interest will cost homeowners, based on the size of their loan. (These example loan repayments were determined using our repayment calculator, based on the lowest variable rate we can offer over a 30-year term, as of 6 December 2022. Rates are subject to change from this date.)
|Loan Amount||Before Increase (4.21%)||After Increase (4.46%)||Difference|
How High Will The Cash Rate Go In 2023?
In his statement on the RBA’s decision, Governor Dr Philip Lowe said inflation is expected to rise over the months ahead and could peak around 8% over the year to the December quarter. The RBA expects to increase interest rates further over the period ahead, but it is not on a pre-set course.
Home Loan Experts CEO Alan Hemmings said, “The last time the cash rate was above 3% was November 2012. Inflation remains high and the RBA continues to want to rein it in; however, it is still uncertain what the central bank will do next year.
“Mortgage holders will get a reprieve in January, as the RBA does not meet. After that, some economists predict, we’ll see a slowing in cash rate increases. Others expect another half-point to be added to the cash rate.”
Hemmings further explained what may slow further cash rate rises is that, over the next 12 months, approximately 30% of outstanding mortgages on cheap fixed rates are due to move to variable rates. This means about $270 billion worth of mortgages are expected to experience an interest rate increase of three percentage points. This will place additional pressure on households and may help curb inflation.
“For those customers who have a fixed rate that is due to expire, being aware of what interest rates are available in the market is very important – so is reading the fine print on any advertising of ‘cheap rates’. We are seeing several lenders offer supposedly cheap rates, but the fine print details further increases down the road. In an effort to attract new business, lenders are slowing the rate at which they pass on interest rate increases to new customers.
The big four banks have shared their predictions on how high the cash rate will go in 2023:
- ANZ: 3.85% May 2023
- CBA: 3.10% December 2022
- NAB: 3.60% March 2023
- Westpac: 3.85% May 2023
With most experts predicting a cash rate rise in 2023, here are some ways you can prepare:
- Consider refinancing to a lender that can get you a competitive rate
- If your lender allows extra repayments without penalty, then you might be able to reduce your principal owing sooner and lower your repayments.
- Use an offset account to reduce the amount you pay in interest.
- Do not be tempted to overspend this Christmas. Take note of your budget and stick to it.
We’ve outlined more ways you can prepare for an interest rate rise here.
Home Loan Experts’ brokers can guide you through the right steps to prepare you for a rise in interest rates, whether through refinancing or simply managing your home loan more effectively. Call us on 1300 889 743 or complete our free online assessment form today.