rate rise
Interest rates on the rise. Source: Karolina Grabowska from Pexels.
  • The big banks are tipping rate rises in November and even December
  • Central banks are under to pressure to raise rates due to inflationary concerns
  • Canstar research has found that loyalty doesn't lead to a lower interest rate

With the Reserve Bank of Australia (RBA) expected to lift the cash rate several more times this year, interest rates are expected to get higher and higher.

Research conducted by Canstar has warned that big banks are tipping a rate rise not just in November, but possibly December too.

This will mean mortgage holders could be paying $318 more in monthly repayments by Christmas.

In the most extreme scenario, variable rates could hit as high as 6.48%.

ANZ and Westpac predicted a 0.5% rise for this month – in the end it was only a 0.25% rise – with smaller increases of 0.25% in November and December.

Big Four Banks Cash Rate Forecast Until End of 2022 (Change/Cash Rate)

ANZ CBA NAB Westpac
Oct 22 0.50%/2.8% 0.25%/2.60% 0.50%/2.85% 0.50%/2.85%
Nov 22 0.25%/3.10% 0.25%/2.85% 0.25%/3.10% 0.25%/3.35%
Dec 22 0.25%/3.35% 0%/2.85% 0.00%/3.10% 0.25%/3.35%
TOTAL 1% 0.50% 0.75% 1%

A 0.5% cash rise this month could have added $157 to monthly repayments based on a $500,000 loan over 30 years.

However, if the cash rate keeps rising by a full 1% between now and December, monthly repayments for a $500,000 loan over 30 years could rise by $318 by Christmas.

Since May 2022, when the RBA began to lift rates, repayments for a typical $500,000 loan have risen by $652.

For those mortgage holders with a loan size of a million or more, factoring in an extra $635 in monthly repayments to December, repayments would have increased from May to $1,939 per month.

Increase in Home Loan Monthly Repayment Based on ANZ & Westpac Sept Forecast

  May + 0.25% June

+0.50%

July

+0.505

Aug

+0.50%

Sep

+0.50%

Oct (forecast)

+0.50%

Nov

(forecast)

+0.25%

Dec

(forecast)

+0.25%

Potential

Total in 8 months

$500,000 $68 $139 $144 $148 $153 $157 $80 $81 $969
$750,000 $102 $209 $216 $223 $229 $235 $120 $121 $1,454
$1,000,000 $136 $279 $288 $297 $305 $313 $160 $162 $1,939
$2,000,000 $272 $557 $576 $593 $610 $627 $319 $323 $3,878

“It won’t be a holly jolly Christmas for mortgage holders with rate rises likely to continue for what could be eight straight months,” said Steve Mickenbecher Canstar’s finance expert.

“The end of the year is likely to be marred by higher costs for almost everything, including that longed-for Christmas holiday, fuel to visit family and friends, and the price to pay for the usual festive feast.

“Even more challenging for some will be having to pull money out of the Christmas budget for higher loan repayments.

“The Reserve Bank wants to see inflation under control and taking the foot off the interest rate accelerator too soon will take us further away from that. The US Federal Reserve remains an interest rate hawk and we don’t want to fall out of line and risk a lower Australian dollar adding to inflationary pressure.

“The pressure is on mortgage holders to secure savings now to give themselves some rate relief in the coming months. Borrowers need to make the adjustments in the expectation that high rates will be with us for years to come.”

Tips for a rate reprieve

In light of this, Canstar has offered tips to gift yourself a rate reprieve in the lead up to Christmas.

  1. Claim your equity benefits

If you have built by equity or paid down your loan, ask your lender for a discount. For those who have 80% or more equity in their property, there are often discounts available. According to Canstar’s database, the average interest rate at 80% LVR is 4.58% with monthly repayments of $2,557 based on a $500,000 loan, among lenders who offer discounts.

By comparison, the average rate at 60% LVR is lower at 4.35% with monthly repayments of $2,489. This 0.23% equates to potential savings of around $68 per month.

  1. Say goodbye to package home loans

A package home loan – basically, a lender combing other products such as an everyday bank account, a credit card or offset account – usually come at a higher cost. Currently, the average package variable rate at the big four banks is 5.70%for a 30-year $500,000 loan, with monthly repayments of $2,902.

The average basic variable rate across the big four is 4.33% with monthly repayments of $2,483, with the lowest basic variable rate in the market is lower at 3.79%. This 1.91% difference equates to around $575 per month.

  1. Become a new customer

Loyalty doesn’t pay off in the lending sector. The RBA’s Housing Lender Rates found that existing home loans have an average interest rate of 3.99%. This works out to monthly repayments of $2,384 on a $500,000 loan over 30 years.

For new customers, the RBA found that new loans have a lower average interest rate of 3.1% with $2,248 monthly repayments on the loan. This 0.48% difference equates to $136 per month, not including any cashbacks lenders offer for refinancing.

~~

Parts of this article have been edited to reflect the 0.25% rise in the cash rate on 4 Oct. This article was published before the decision was made by the RBA. 



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