Well, you shouldn’t be! the cash rate at .85% is still historically low!
Why should the rate increase not scare you?
Don’t be alarmed by what’s been showed by the media, that’s just one side of the story. Increase in home loan repayments is never nice but it’s not alarming either. If you were on a variable rate, chances are you were paying the lowest home loan repayment ever for the last 18 months. I have spoken to many of you about potential rate increases and we always said, not sure when but it will certainly happen!
Back in November 2020, when the RBA cut it from 0.25% to 0.10% in an attempt to minimise the impact of the global pandemic. the cash rate has been steadily held, that is until May’s recent increase. The RBA takes a number of things into account when considering whether to change the cash rate including inflation, employment rates, and the growth rate of the Australian economy.
While the RBA originally proposed that it didn’t expect to raise the cash until at least 2024, it changed its mind in response to soaring inflation. This meant the time was right to start normalising interest rates away from emergency lows.
How does it affect home loans?
If you currently have a fixed home loan, your monthly repayments will see no change until your fixed term ends and your loan reverts to a variable rate. If you currently have a variable home loan, this is where you’ll see an increase.
Monthly mortgage repayment increases for those with a variable home loan, under the new rate, the monthly payment on a $600,000 home loan would rise by estimated $159 per month. For those with a $1 million loan, repayments would rise by $265 a month.
Here’s a few positives for you:
1. We forget that interest rate rises are a sign of a strengthening economy “”The Australian economy is resilient, growing by 0.8 per cent in the March quarter and 3.3 per cent over the year. Household and business balance sheets are generally in good shape, an upswing in business investment is underway and there is a large pipeline of construction work to be completed” – Philip Lowe, Governor
2. Aussies are more employed than ever before. The strong labour market is seen by the current unemployment rate at 3.9 per cent, which is the lowest rate in almost 50 years. Job vacancies and job ads are at high levels and a further decline in unemployment and underemployment is expected
3. We have one of the world’s most rigorous banking systems. There are multiple hoops borrowers must jump through to secure a loan. While many may have been cursing APRA guidelines that introduced moves such as increasing the interest rate assessment buffer. So the bank’s made sure you could meet your repayment if the rate was to increase by 2.5% to 3% for some lender. So you are well placed to weather rate increases because of the tough process they endured getting their finance in the first place.
4. Talk to anyone who had a loan back in 1989 when interest rates were at 17 per cent. They’ll tell you the current scenario is a dream. Even if rates moved as high as the predicted and reach 2.5 by 2023, they would still be below three per cent. The last time we saw rates above that figure was in 2013. Therefore, by historic standards, money remains very affordable.
Would you like me to review your current interest rate?
Please contact me on the details below and we discuss if you can save by refinancing to a better rate!
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