The RBA cash rate has increased again, reaching 4.60% after the Reserve Bank raised rates by another 0.25 percentage points. It is the fourth rate increase this year, adding further pressure to households with variable-rate home loans.
Following rate hikes in February, March and May, the latest increase takes the cash rate to its highest level in 15 years, matching levels last seen in October 2011.
For mortgage holders already dealing with higher borrowing costs, the latest RBA cash rate decision could mean another increase in monthly home loan repayments. With inflation continuing to run higher than expected, the Reserve Bank has also indicated that further rate increases could remain on the table if necessary.
Why Has the RBA Cash Rate Increased Again?
The Reserve Bank’s Monetary Policy Board said that some of the upside risks to inflation identified at its previous meeting had started to materialise.
Recent economic data indicated that growth and inflation had been stronger than expected, while disruptions to global oil supplies had contributed to higher fuel prices.
According to the Reserve Bank, some of these higher fuel costs had already flowed through to the prices of other goods and services. This has added to existing capacity pressures across the economy.
The latest RBA cash rate increase is therefore part of the Reserve Bank’s broader effort to bring inflation sustainably back towards its target range of 2% to 3%.
The Board also made it clear that its future decisions would depend on how inflation and economic conditions develop.
In its statement, the Reserve Bank said it would continue to take the steps it considers necessary to bring inflation back to target, including potentially increasing the cash rate further if required.
For borrowers, this means the current rate environment may not be the end of the story.
How Does the RBA Cash Rate Affect Your Mortgage?
When the Reserve Bank increases the cash rate, lenders may respond by increasing their variable home loan interest rates.
The exact impact depends on your lender, loan balance, interest rate and remaining loan term. However, even a relatively small increase in your interest rate can make a noticeable difference to your monthly repayments.
For example, consider an owner-occupier with a $500,000 home loan over 25 years, paying principal and interest.
If their lender passes on the full 0.25 percentage point increase, their monthly mortgage repayments could rise by approximately $77 per month.
That works out to around:
- $77 extra per month
- $924 extra per year
- $3,696 per year when including the four rate increases referenced in the original scenario
For a $750,000 home loan, the same 0.25 percentage point increase could add approximately $115 to monthly repayments.
That equals around:
- $115 extra per month
- $1,380 extra per year
- $5,520 per year when including the previous three increases
For borrowers with a $1 million mortgage, the increase could be approximately $154 per month, depending on the loan structure and lender.
That equates to around:
- $154 extra per month
- $1,848 extra per year
- $7,392 per year when including the previous three rate increases
These figures are estimates and assume that the lender passes on the full 0.25 percentage point increase to the home loan. Actual repayment changes can vary depending on the interest rate, loan term, repayment structure and lender.
What Can Mortgage Holders Do About Higher Rates?
A higher RBA cash rate does not necessarily mean borrowers have to simply accept higher repayments without reviewing their options.
If you have not reviewed your home loan recently, now could be a useful time to take a closer look at your current interest rate and loan structure.
Your existing lender may not automatically offer you its most competitive available rate. In some circumstances, negotiating with your current lender or comparing alternative home loan products could potentially reduce your borrowing costs.
Other options may also be worth discussing, depending on your individual circumstances.
These could include:
- Refinancing to a lower-rate home loan
- Negotiating a better interest rate with your existing lender
- Reviewing your loan structure
- Considering an interest-only arrangement for a limited period where appropriate
- Consolidating eligible debts into a home loan
- Reviewing your household budget and repayment strategy
Don’t wait for another rate announcement before reviewing your mortgage. Get in touch with our team today to discuss your current home loan and explore the options that may be available to you.
RBA Cash Rate Rise: Is It Time to Review Your Home Loan?
For many borrowers, repeated rate increases can make it increasingly difficult to manage household cash flow.
Even a relatively small monthly increase can add up over a year. When combined with previous rate rises, higher mortgage repayments can have a much greater impact on the household budget.
This is why a regular home loan review can be valuable, particularly when interest rates are changing.
If you have been with the same lender for several years, it may be worth checking whether your current interest rate remains competitive. Your circumstances may also have changed since you originally took out your mortgage.
For example, you may have:
- Built up additional equity in your property
- Reduced your mortgage balance
- Increased your household income
- Changed your financial goals
- Taken on additional debts
- Changed from an interest-only to principal-and-interest loan
- Become eligible for different loan products
These changes could affect the home loan options available to you.
How Refinancing Could Help
Refinancing involves replacing your existing home loan with a new loan, either with your current lender or another lender.
Depending on your circumstances, refinancing may provide an opportunity to access a different interest rate, change your loan structure or consolidate eligible debts.
However, refinancing is not automatically the right solution for every borrower. Costs, loan features, eligibility requirements and the long-term impact of changing loans should all be considered before making a decision.
That is why it can be helpful to speak with a mortgage professional who can assess your circumstances and explain the available options.
If your mortgage repayments have increased after the latest RBA cash rate decision, now is a good time to review your loan. Contact us today and let’s see whether there may be ways to improve your current position.
What Happens Next With Interest Rates?
The direction of future interest rates will depend on economic conditions, inflation and other factors considered by the Reserve Bank.
The latest decision shows that inflation remains a key consideration for the Monetary Policy Board. If inflation continues to remain above the desired path, further action could be considered.
For mortgage holders, this uncertainty makes it important to understand how future rate movements could affect their finances.
Rather than focusing only on the current interest rate, borrowers can consider how their mortgage would cope with different interest-rate scenarios.
For example, understanding what your repayments would look like after another 0.25 percentage point increase can help you assess whether your current loan remains manageable.
It may also highlight whether reviewing your interest rate, loan structure or overall debt position could be worthwhile.
The most important step is to avoid making assumptions about your options. Every mortgage and household situation is different, so what works for one borrower may not be appropriate for another.
Review Your Mortgage After the Latest Rate Rise
The latest RBA cash rate increase is another reminder that mortgage holders should keep an eye on their home loan.
A 0.25 percentage point increase may appear relatively small, but its impact can become significant when applied to a large mortgage balance and combined with previous rate increases.
If you have not reviewed your mortgage recently, this could be the right time to understand what you are currently paying and whether there are alternative options worth considering.
Our team can help you review your existing home loan, compare potential options and understand strategies that may help you manage higher borrowing costs.
Ready to review your mortgage? Get in touch today to discuss your options and find out whether your current home loan is still working for you.
Phone: 1300 855 022
Email: clientservices@zippyfinancial.com.au
Zippy Financialis an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business.
About the Author:
Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilises her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.
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Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).
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