Official interest rates reach the highest level since 2014.
As expected, the Reserve Bank increased the official interest rate again yesterday – by 0.5%, taking it to 2.35%, the highest level it has been since 2014.
- It is the Reserve Bank’s fifth consecutive rate increase.
- It is widely expected that banks and lenders will pass on the full rate rise to borrowers resulting in another increase in mortgage repayments for variable rate loans.
- It is reported that both the economy and households are yet to feel the full effect of the rate rises we have had so far.
- The Reserve Bank indicated yesterday that interest rates may increase again: “The Board expects to increase interest rates further over the months ahead, but it is not on a pre-set path. The size and timing of future interest rate increases will be guided by the incoming data and the Board’s assessment of the outlook for inflation and the labour market.” 1
While we don’t know exactly when and at what level rates will peak, it is important for borrowers to be aware of what their repayments would be if rates continue to rise.
Scenario planning
The table below provides a general guide for repayment levels for various loan sizes at various variable interest rates. These are general examples so please do not hesitate to contact us if you would like to discuss repayments specific to your loan.
You can also use the loan repayment calculator on the CFS website to run scenarios on what your loan repayments will be at various variable rates.
It is essential to keep up to date with news about interest rates so that your planning is relevant.
Monthly repayment levels at various standard variable interest rates :
(Assumptions: owner occupied, principal and interest loan with a 30-year loan term)
| Loan size | Monthly Repayments at increasing variable rates | ||||||
| 3% | 3.5% | 4% | 4.5% | 5% | 5.5% | 6% | |
| $500000 | $2109 | $2246 | $2388 | $2534 | $2685 | $2839 | $2998 |
| $600000 | $2530 | $2695 | $2865 | $3041 | $3221 | $3407 | $3598 |
| $700000 | $2952 | $3144 | $3342 | $3547 | $3758 | $3975 | $4197 |
| $800000 | $3373 | $3593 | $3820 | $4054 | $4295 | $4543 | $4797 |
| $900000 | $3795 | $4042 | $4297 | $4561 | $4832 | $5111 | $5396 |
| $1,000000 | $4217 | $4491 | $4775 | $5067 | $5369 | $5678 | $5996 |
Increasing your repayments
If your loan structure allows it, and it is appropriate for your situation, consider increasing your repayment level to the amount required for higher interest rates. Paying extra now could help ensure you are ready for further rate increases.
Using your offset facility.
If your loan has an offset facility, you could consider making the extra repayments to your offset account. The savings you have in your offset account offset the interest you pay on your home loan. Talk to us about how to use your offset account to manage future rate rise and whether it is appropriate for your situation.
If you are currently on a fixed rate
If you are on a fixed rate, it important to plan and consider what your loan repayments will convert to once the fixed term is over. Talk to CFS to discuss your loan and options.
Talk to us
If you would like to talk through options to help manage your repayments at higher rates. contact us. We can’t stress enough the importance of planning ahead. Contact the office on 429 9775 or email: kris@courtfs.com.au
Published 7th Sept 2022
1.https://www.rba.gov.au/media-releases/2022/mr-22-28.html
The information provided in this Interest Rate Update is general and has not taken into account personal financial situations, objectives and needs. Individual circumstances will vary. We recommend seeking advice about your personal circumstances before acting on information provided here. For specific information about your home loan to talk about your specific circumstances, please do not hesitate to contact Court Financial Services on 9429 9225
