The RBA increased the cash rate on Tuesday 7th June by 0.50%, taking it up to 0.85%. Although the increase was highly anticipated, it was bigger than expected. In fact, it was the biggest cash rate increase since 2000.
Major banks and many more lenders have announced they will be increasing variable home loan rates by the full amount of the June cash rate increase.
The Reserve Bank has made it clear more rate rises can be expected in the months ahead. Phillip Lowe, Reserve Bank Governor said; “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”. Some economists have forecast the cash rate to hit 2.5% by the year end.
We are encouraging Court Financial Services clients to plan for more rate rises.
The table below provides a guide for the impact higher interest rates will have on mortgage repayments for loans of various sizes.
These are general examples so please do not hesitate to contact us if you would like to know specific details for your loan repayments.
Monthly repayment levels at various standard variable interest rates.
(Assumptions: owner occupied loan, principal and interest with a 30 year loan term)
| Loan size | Monthly Repayments at increasing variable rates
|
||||||
| 2.5% | 3% | 3.5% | 4% | 4.5% | 5% | 5.5% | |
| $500000 | $1976 | $2109 | $2246 | $2388 | $2534 | $2685 | $2839 |
| $600000 | $2371 | $2530 | $2695 | $2865 | $3041 | $3221 | $3407 |
| $700000 | $2766 | $2952 | $3144 | $3342 | $3547 | $3758 | $3975 |
| $800000 | $3161 | $3373 | $3593 | $3820 | $4054 | $4295 | $4543 |
| $900000 | $3556 | $3795 | $4042 | $4297 | $4561 | $4832 | $5111 |
| $1,000000 | $3952 | $4217 | $4491 | $4775 | $5067 | $5369 | $5678 |
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. Consider what your repayment level would be if your home loan interest rate was 5%. If your loan structure allows it, consider setting your repayment level to this amount now to help ensure you can manage further rate increases.
Why plan for a 5% variable rate?
We do not know how high rates may be in the future, however planning for a 5% rate provides a good buffer above current rate. This may change over time and your planning may need to change.
It’s important to keep up to date with news about interest rates so that your planning remains effective.
Using your offset facility.
If your loan has an offset facility, 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 the benefits of using your offset account to manage future rate rise.
If you are currently on a fixed rate
If you are on a fixed rate, it is just as important to plan and consider what your loan repayments will convert to once the fixed term is over. Talk to CFS to discuss your options.
Talk to us
If you would like to talk through options to help manage your repayments at the higher levels, or if you have concerns about your ability to afford future rate increases, contact us. We can’t stress enough the importance of planning ahead. Please contact our off 9429 9775 or email kris@courtfs.com.au
