Aussie homeowners can face thousands of dollars in extra mortgage payments by the end of the year.
Homeowners are being asked to prepare for rate hikes that could increase their mortgage repayments by thousands of dollars each year.
Many economists believe that the Reserve Bank of Australia (RBA) will raise cash rates in June, which is likely to cause banks to push interest rates up for them on variable loans.
The RBA could move as early as May, but this would fall within the federal election campaign period, and AMP Capital’s chief economist Shane Oliver believes that inflation data released at the end of this month must be quite high for this to happen.
“The RBA would only (move in May) if they felt an urgent need to raise interest rates,” Oliver said.
The RBA’s cash rate is currently 0.1 percent, and some analysts believe it may continue to raise interest rates during the year to eventually reach 1 percent.
Canstar has crushed $ 500,000 in mortgage lending, showing a 0.25 percentage point increase in interest rates could cost homeowners an extra $ 69 a month ($ 828), while a 1 percentage point increase would make repayments increase by $ 280 per month ($ 3360).
However, the median property prices in Sydney and Melbourne, especially for those who own a house instead of a unit, are now much higher than this.
For a person with a $ 1.1 million loan in Sydney, repayments would increase by $ 561 per month ($ 6,732 per year) if the cash rate reached 1.25 percent in February 2023, as predicted by the Commonwealth Bank.
In Melbourne, repayments on a $ 799,230 loan would increase by $ 400 a month ($ 4800 a year).
Over 30 years, this would cost Sydney homeowners $ 202,178 in additional repayments and $ 143,949 in Melbourne.
According to realestate.com.au’s PropTrack house price index for March, the average property price (including units) in Sydney has risen to $ 982,000, and in Melbourne it is now $ 780,000.
Some have estimated that if the variable discount rate were to rise by 2.15 per cent to 5.60 per cent in June next year, then mortgage repayments would increase by 29 per cent from the current level.
For the average Sydney buyer, monthly repayments would increase by as much as $ 1141 ($ 13,692 per year), while they would increase by $ 818 ($ 9816 per year) in Melbourne.
Monthly mortgage repayments on the Australian home at the median price would increase from $ 2599 in February 2022 to $ 3344 – an increase of $ 744. This would equate to $ 8928 a year.
While many homeowners do not want to see an interest rate rise, the RBA may have no choice due to rising inflation.
Sir. Oliver said that the longer the interest rate stays down, the longer it will boost spending on the economy.
“It seems to be ‘bad’, but the lesson from the 1970s is that high inflation leads to lower productivity and lower living standards,” he said.
“Ultimately, it’s best to keep inflation low and under control, which is why the RBA is starting to focus more on it.”