RBA raises cash rate to 0.85%
What this means for you
- For homeowners. Your mortgage repayments are likely to rise on variable rate loans.
- For first home buyers. Your borrowing power may decrease, but property price growth may stall.
- For renters. It's unlikely the rate rise will have much impact on what you pay in rent.
- For savers. Your savings account rate may rise in the next few weeks.
What's happened?
The Reserve Bank of Australia (RBA) has lifted the cash rate to 0.85%. The rate is bad news for borrowers but it was no surprise: 86% of Finder's experts predicted the move in our RBA Cash Rate survey.
Here's why today's decisions hits Australian borrowers right in the wallet:
- Banks often lend money to each other on short notice to fund loans. The official cash rate is a benchmark determining some borrowing costs for lenders.
- A higher cash rate means higher costs. Lenders pass this onto customers in the form of higher interest rates on variable home loans.
- Higher interest rates mean your monthly home loan repayments increase.
With Australians borrowing more and more for their home loans every year, a cash rate rise is a big deal.
The average owner-occupier borrows around $600,000, according to the ABS. Assuming you had a competitive variable interest rate of 2.30% (over 30 years) and your lender passed on the full cash rate rise, your rate would now be 2.80%.
Here's what that looks like in dollar terms:
- Your monthly repayments at 2.30% = $2,308
- Your monthly repayments at 2.80% = $2,465
That's a hike of $157 a month, or $1,884 a year. Borrowers with larger mortgages, or less competitive interest rates, will see even bigger increases.
Prepare for life in a world of rising interest rates
This won't be the end of interest rate rises. 29% of Finder's RBA experts predict at least 2 more cash rate rises in 2022.
The cash rate may end up at around 2.00% or higher. That's a big jump from its recent historic low of 0.10%.
And with costs of living rising generally, and energy prices soaring in some states, rising rates only make life harder for a lot of borrowers.
If you're worried about rising interest rates, there are several steps you can take to keep your head above water:
- Refinance your home loan. If your lender has just increased your interest rate (and it might not make any decision for a few days), you should look at other offers on the market and see if you can get a better deal. This is something every borrower should do from time to time.
- Build up savings. Interest rates are rising but still quite low compared to most of recent history. It's a good time to build up some savings to help you cover rising repayments in future. You could put savings into an offset account for maximum flexibility and to help you reduce interest charges.
- Take advantage of high interest rate savings products. Interest rates on savings accounts should rise as the cash rate rises. So it might be worth looking at a high interest account as a way to boost your savings. You could also look at ETFs or other investment products.
Need help saving money? Check out all our money saving tips.