The Reserve Bank of Australia has hiked the cash rate 11 times since April 2022. Millions of Australians with home loans will be on much higher interest rates than they were just a year ago.
In the latest board meeting for September, the RBA kept the cash rate on pause yet again at 4.10%. Three of the four big bank economists now predict that the cash rate has officially peaked, with only NAB forecasting one more cash rate hike by the end of 2023.
Increases to your mortgage interest rate typically occur around two months post RBA hike, so it's likely that your mortgage repayments have finally caught up with the last year of hikes - assuming you are on a variable home loan rate.
For a borrower with a $500,000, 25-year home loan that was paying the RBA’s existing average owner-occupier variable rate of 2.86% in April 2022, the last cash rate hike could mean your home loan repayments are $1,134 higher.
So, how can everyday Australians afford this shocking increase to mortgage repayments? Let's explore some of the strategies to consider when your repayments become too much for your household budget.
Variable Rate Home Loan – Refinance Only
Gold Award Winner 2023
Built by CBA, this home loan deal allows borrowers who refinance benefit from an ongoing loyalty discount
5.74%
p.a
Variable
5.65%
p.a
Impact of rate hikes and total increase in repayments
| Starting month | Estimated repayment | Difference | Increase from April by |
| Apr-22 | $2,335 | / | / |
| May-22 | $2,400 | $65 | 2% |
| Jun-22 | $2,532 | $197 | 8% |
| Jul-22 | $2,667 | $333 | 14% |
| Aug-22 | $2,807 | $472 | 20% |
| Sep-22 | $2,949 | $614 | 26% |
| Oct-22 | $3,022 | $687 | 29% |
| Nov-22 | $3,095 | $760 | 33% |
| Dec-22 | $3,169 | $834 | 36% |
| Feb-23 | $3,243 | $908 | 39% |
| Mar-23 | $3,318 | $983 | 42% |
| May-23 | $3,393 | $1,058 | 45% |
| Jun-23 | $3,469 | $1,134 | 49% |
| Jul-23 | $3,469 | $1,134 | 49% (cash rate hold) |
| Aug-23 | $3,469 | $1,134 | 49% (cash rate hold) |
| Sep-23 | $3,469 | $1,134 | 49% (cash rate hold) |
Source: RateCity.com.au Based on a $500,000 owner-occupier loan paying principal and interest with 25-years remaining. Rate is the RBA's average existing owner-occupier variable rate in April 2022 of 2.86%, and assumes banks pass the cash rate hike on in full. Calculations are for existing customers.
Homeowners should expect that interest rates will fluctuate over an average 20-30-year home loan term. While an increase of 4 percentage points in one year is far from ordinary, being prepared for higher interest rates at one point in your home loan is a worthwhile strategy.
Let's explore what homeowners could do right now to help give their budget some breathing room and better afford higher mortgage repayments?
Steps to afford higher mortgage repayments
1. Assess your budget
The first place you may want to consider starting when tackling higher mortgage repayments is looking at your budget. Take stock of your expenses and consider areas you can cut down and where you can inject more funds to your mortgage repayments. Whether this means selling some belongings on GumTree or ditching a subscription service, every dollar helps.
2. Utilise your offset account
If your home loan provides an offset account, this may be used to help lower your repayments. The funds that you deposit into this account help to reduce the interest payable on your home loan, all while you grow a savings nest egg.
3. Ask for a lower rate
Home loan lenders often reserve their most competitive interest rates for new customers. If you’ve been repaying your mortgage for a number of years, it may be worth checking online what your lender is offering these new customers, picking up the phone and asking for them to match this rate.
4. Extra repayments
If your home loan allows for extra repayments without penalty, directing any additional funds or windfalls to chipping away your principal can help reduce your mortgage repayments.
5. Consider refinancing
If your lender won’t budge on your home loan interest rate and you feel as if you may get a better deal elsewhere, it could be worth comparing your options. Use tools like a comparison table to compare options in the market that may better suit your needs and financial situation.
6. Ask for help
Banks do not want you to default on your mortgage almost as much as you do not want to. If you’re struggling financially and cannot meet your monthly repayments, pick up the phone and tell your lender. They should have hardship assistance in place to support you, or help you make a payment plan in the meantime.
