The Reserve Bank of Australia's decision to raise the cash rate to 3.35% marks its highest level in a decade and is the ninth consecutive interest rate hike.
According to the accompanying statement of RBA Governor Philip Lowe, "Global inflation remains high." That's why the central bank has been attempting to reduce inflation with this move, hoping it will slow consumer spending and give businesses more room to maneuver their growth plans.
However, he added, "it will be some time before inflation is back to target rates of 2%-3%.
This decision has been criticised, as the increased cost of borrowing will add additional pressure to those already dealing with financial instability due to the global pandemic and economic crisis.
Despite this, further rate hikes are likely on the horizon to maintain inflation targets and stabilise Australia's economy over the coming months.
Making additional monthly mortgage payments can help homeowners pay off their loans quicker and save a lot of money in the long run. However, the Reserve Bank of Australia's (RBA) rates decision last Tuesday, February 7, could mean an increase in repayments for those looking to make extra payments on their $500,000 loan.
These repayments might increase to $1,058 per month, according to RateCity, if the RBA raises its cash rate by a further 50 basis points to 3.85%.
It would be a significant increase from pre-May 2022 levels. Both ANZ and Westpac had been predicting 3.85% as the peak interest rate before today's verdict, and financial markets also priced in a higher RBA rate summit before it declined. (source: theguardian)
The four largest banks, Commonwealth Bank, Westpac, ANZ, and NAB, have predicted interest rates for 2023. (source: australianfinancehub)
According to Westpac, interest rates could reach as high as 3.85% by March 2023. This would represent a significant increase from the current rate of 0.1%. ANZ predicts that rates will peak at 3.85% in May 2023, while NAB's forecast is slightly more conservative, with rates reaching 3.6% by March 2023. This likely pushes the average variable rate to 6.48%.
This might result in an increase in expenses of $2,100 per month for homeowners with a mortgage of $1 million in 2021. At the end of the year, according to the CBA, interest rates will be 3.10 per cent.
Rates are predicted to increase dramatically over the coming months so it's important to think about how this can affect your financial status. So contact your lender or a financial advisor if you have any concerns about how increasing interest rates will affect your capacity to pay back your mortgage.
You're not the only one who is concerned about rising interest rates because more homeowners are also beginning to feel the squeeze, and there is no reason to panic. You can navigate these waters and obtain a loan that works for you with the assistance of our Melbourne mortgage broker.
You can count on our team of professionals to help you comprehend your possibilities and locate a loan that meets your requirements because we will do everything we can to make sure you are happy with your new loan and will work with you to find a rate that won't break the bank.
Schedule a call with us today if you're ready to explore your options and we'll be happy to answer any questions you have and get you started on the path to a new loan.
