How rising interest rates affect home loan repayments
Updated April 4, 2023
Understanding interest rate changes and the implications for home loan repayments is crucial for home owners and buyers alike.
Home owners need to know how much their repayments could rise if interest rates go up.
Buyers need to know how rising interest rates could affect their buying power and future mortgage repayments.
The Reserve Bank of Australia (RBA) started raising the official interest rate in May 2022 for the first time in 11 years, with successive rate hikes in the following months.
Borrowers with variable rate home loans have seen their interest rates increase as banks pass on the rate rises to customers.
The cash rate target sits at 3.6 per cent, after the RBA decided to keep interest rates steady at the RBA’s April board meeting.
The RBA indicated that further rate rises may be necessary, depending on what the upcoming economic data says when it comes to inflation, household spending and the labour market.
Home loan interest rates are typically a few percentage points higher than the cash rate. Typical variable interest rates for new borrowers sit at about 5.75 to 6 per cent.
Home owners and buyers can understand the effect that interest rate changes could have on monthly home loan repayments using the Domain Home Loans repayment calculator.
Each month, the Reserve Bank of Australia (RBA) board meets and sets the cash rate target, sometimes referred to as the “official” interest rate. The cash rate serves as a benchmark for home loan interest rates, which are normally a few percentage points higher.
How could further interest rate rises affect home loan repayments?
The table below shows how much monthly home loan repayments could rise over the next few months, using data from the Domain Home Loans repayment calculator.
How a rate rise affects monthly repayments |
|
Home loan amount |
0.25% rate increase |
| $500,000 | $80 |
| $750,000 | $120 |
| $1,000,000 | $160 |
| $2,000,000 | $320 |
Source: Domain Home Loans Repayment Calculator. The above table shows the approximate amounts monthly home loan repayments could increase if interest rates rise. Based on a 30-year principal and interest loan with an initial 5.75% interest rate. Information is intended as a guide only. Fees and charges excluded.
The table below shows how much monthly home loan repayments would be at different interest rates and loan amounts.
Estimated monthly home loan repayments |
|||||
Home loan amount |
5% variable rate |
5.25% variable rate |
5.5% variable rate |
5.75% variable rate |
6% variable rate |
| $500,000 | $2,684 | $2,761 | $2,839 | $2,981 | $3,079 |
| $750,000 | $4,026 | $4,142 | $4,258 | $4,377 | $4,618 |
| $1,000,000 | $5,368 | $5,522 | $5,678 | $5,836 | $6,157 |
| $2,000,000 | $10,736 | $11,044 | $11,356 | $11,671 | $11,991 |
|
Source: Domain Home Loans Repayment Calculator Estimates are based on a 30-year principal and interest loan. Fees and charges are excluded, and this information is intended as a guide only. |
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To find out how much your home loan repayments would be, enter your estimated property price, deposit, loan term, interest rate and repayment type into the repayment calculator below.
How high could interest rates rise?
It’s anyone’s guess how high interest rates could go, but the big four banks have predicted rates to keep rising until April or May 2023. Some economists now expect rates to start coming down again in late 2023 or early 2024.
Interest rate predictions – When will the RBA cut rates? |
|||
How high could the cash rate go? |
When could the cash rate peak? |
When could the RBA start cutting the cash rate target? |
|
| Bill Evans, Westpac | 4.10% | May 2023 | Q1 2024 |
| Gareth Aird, CBA | 3.85% | May 2023 | November 2023 |
| Alan Oster, NAB | 4.10% | May 2023 | February 2024 |
| Felicity Emmett, ANZ | 4.10% | May 2023 | November 2024 |
To find out how much you could save by refinancing your home loan, enter your current interest rate, estimated property value, outstanding loan amount and term and your repayment type into the refinance savings calculator below.
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