How much extra you will pay on your mortgage

Many Australians will have to find room in their budget with more rate hikes expected by the end of the year. See here how much extra you’ll pay.

Homeowners who were told interest rates would not rise this year will have to find an extra $3353 by Christmas to keep up with their repayments on a $500,000 mortgage.

The Reserve Bank jacked up the cash rate for the third consecutive month on Tuesday — despite consistently saying last year that rates would remain at historic low levels until 2024 — and flagged more increases over coming months.

With economists expecting the cash rate will hit 2.35 per cent by December, a Herald Sun analysis shows this would take monthly repayments on a $500,000 loan to $2973, up from $2350 at the start of the year.

Another increase of 0.5 percentage points next month plus two 0.25 per cent rises later in the year would mean borrowers would owe $31,553 in total repayments this year, compared to $28,200 if their interest rate had remained at 2.92 per cent — the average at the start of 2022.

Homeowners with $750,000 owing on their mortgage over the next 25 years will have to cough up an extra $5026 in repayments this year, while those with $1m loans will have to pay an extra $6693 by Christmas.

The three rate hikes in the past three months — after no increases for more than 11 years — have added $336 to the monthly repayments on an average $500,000 loan.

“That’s like paying for an extra week’s worth of groceries and petrol, every single month,” RateCity.com.au research director Sally Tindall said.

“There’s more pain on the way for variable home loan customers with another double hike tipped for next month. If this happens, it will be the sharpest rise to the cash rate since 1994.”

As late as November last year, Reserve Bank Governor Philip Lowe was predicting the cash rate would be steady until 2024, dismissing predictions of earlier rate rises as a “complete over-reaction” to rising inflation.

On Tuesday, as he announced another 0.5 per cent rise, Dr Lowe said the Reserve Bank expected to increase rates further over the months ahead and would do “what is necessary to ensure that inflation in Australia returns to target over time”.

Ms Tindall said: “Borrowers need to ready themselves for rates to rise by a total of 2.5 percentage points by early next year, potentially even higher.”

Westpac chief economist Bill Evans said he expected a further hike by 0.5 percentage points in August before the Reserve Bank paused in September to consider how the economy had responded to the increases.

Jim Chalmers said the Reserve Bank’s decision was “very challenging news for hardworking Australians already doing it tough” in a “cost of living crisis”.

“When it comes to inflation, we expect it to get worse before it gets better, and the Reserve Bank has flagged further rate rises,” the Treasurer said.

Treasurer Jim Chalmers at the Australia Economic Outlook at the Crown Casino. Picture: John Feder

He said even families with a savings buffer would be put under pressure in coming months.

“Some people will be able to accommodate these rate rises but many won’t, and it will have a broader impact on the economy as well, which is what it’s designed to do,” Dr Chalmers said.

Anthony Albanese sidestepped questions about what extra support the government could provide to struggling households, with the Prime Minister saying only that bigger tax refunds for low and middle income earners — announced by the Coalition — had kicked in on July 1.

Dr Chalmers warned the latest floods in New South Wales would also deliver a “substantial” hit to household budgets.

“Grocery prices, including fruit and vegetables, are already going through the roof and this will make it more difficult,’ he said.

Originally published as How much extra you will pay on your mortgage