home loans features
Image – Canva.
  • Mozo's database shows the average variable rate is currently 4.93%
  • Interest rates have risen five times already this year, and are expected to do so next month
  • It is an ideal time to refinance, experts say

Ahead of the Reserve Bank of Australia (RBA)’s meeting next Tuesday, where another a rise is expected, analysis has revealed that repayments will rise by more than $3,000 for a $400,000 home loan.

Mozo has found that 15 lenders passed on the previous five rate increases in full. Currently, its database shows the average variable rate is now 4.93%, up 191 basis points since 1 May.

“Borrowers need to brace yet again for another rate rise in October,” said Claire Frawley, Personal Finance Expert at Mozo.

“While there is more speculation month around how much the RBA will increase rates by, it is expected that they will increase by at least another 50 basis points before the end of the year. Whether that’s split up over two months or just one rise.”

Claire Frawley, Mozo

Notably, customers who secured the variable rate of 3.02% in May of this year would now have a 4.77% rate if the 275 basis points raise is passed on full.

Therefore, for a $400,000 loan, an owner occupier would be paying an extra $3,227 per year to afford the repayments.

Increases on a $400,000 loan following four RBA hikes
Average variable interest rate May 1st May RBA increase 25bp June RBA increase 50bp July RBA increase 50bp August RBA increase 50 bp September RBA increase 50bp October RBA increase 50bp
Interest rate 3.02% 3.27% 3.77% 4.27% 4.77% 5.27% 5.77%
Monthly repayment $1,901 $1,953 $2,061 $2,171 $2,285 $2,402 $2,521
Yearly repayments with rate increases $22,812 $23,228 $23,984 $24,644 $25,214 $25,682 $26,039

Source – Mozo

 

Several consecutive increases have not occurred since October 2009 through to November 2010. However, these rises were only 25 basis points.

“Although home loan interest rates are returning to more normal levels following the pandemic, consecutive increases are clearly hitting home with many borrowers confronted with higher monthly repayments,” added Ms Frawley.

The leading variable home loan rate, according to Mozo, is G&C Mutual Bank’s 3.34%.

If a borrower refinanced a $400,000 loan from 4.93% to 3.34%, up to $4,248 could be saved per annum.

“While refinancing might seem like a massive undertaking, especially as rates are expected to continue to rise, it is a great way to soften the burden of higher interest rates and inject some extra cash into household budgets,” concluded Ms Frawley.



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