Time to read : 3 Minutes
The Reserve Bank increased the cash rate by an additional 0.50% at the start of August, bringing it to 1.85%.
For an average Australian with a 600K mortgage, payments will now be approximately $550 more a month than they were at the start of May.
What do I need to know?
The Reserve Bank is using higher interest rates to combat the rising cost of living. Inflation – which officially currently stands at 6.1% – has been steadily rising, pushing up the cost of essentials like fruit and veg.
Wages, on the other hand, have risen by 2.7% in the past 12 months. That's a substantial gap with the rising cost of living.
The Treasury’s predicting inflation will hit 7.75% by the end of the year, which could mean a lot of pressure on everyday expenses in households across Australia.
Many lenders tend pass on the rate increases to variable rate customers within a week of the RBA announcements.
The RBA thinks Australian households have enough savings to handle further rises, but NAB’s analysis suggests that wages aren’t keeping up with inflation.
Economists are predicting interest rates to peak at around 2.5% to 3% later this year.
Be aware: Fixed rate mortgages were expected to keep rising but in August several banks - including Westpac, Macquarie and CommBank actually cut some of their fixed rate home loans.
What can you do?
Anybody on a variable rate home loan can expect a rocky ride over the coming months, especially if they’ve not reviewed their mortgage recently.
Variable rate mortgage holders should start the conversation with their broker or bank before the next hike to see if there’s a better alternative.
Fixed rate expiring in the next six-to-12 months? You should prepare for your repayments to increase.
Compare Club’s brokers suggest making extra repayments, if you can afford it, to provide a buffer against rising rates.
The bottom line
Shopping for groceries, utility bills, appliances, petrol and mortgages are all going to cost more. This is likely to put the squeeze on most household budgets so taking steps to sort out your mortgage could give you more breathing room with the rest of your finances.
Get informed
Financial Disclaimer:
The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions.
