Aussie homeowners facing $443-a-month repayment hike as interest rate nightmare grows

One group of Australians could be hundreds of dollars out of pocket by the end of the year, as the nation’s financial crisis really starts to bite.

Australia’s interest rate nightmare could see homeowners slugged with an extra $443 per month from Christmas, startling new data has revealed.

On May 3, the Reserve Bank of Australia announced the first official interest rate hike since 2010, revealing it would lift the cash rate by 25 basis points to 0.35 per cent from 0.1 per cent.

The historic rate rise was announced in response to skyrocketing inflation, which has reached an annual rate of 5.1 per cent and has sent prices climbing at the fastest rate in two decades.

It also marked the first rate rise during an election campaign since 2007, when John Howard was defeated by Kevin Rudd.

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Aussies are starting to feel the pinch. Pictures: iStock

However, experts have repeatedly warned that the May rate rise was just the tip of the iceberg, with the Reserve Bank of Australia has warned that more interest rates hikes are on the horizon.

In fact, new details from the RBA’s May Board meeting prompted the Commonwealth Bank to sound the alarm over looming rate rises this week, predicting rate hikes of 25 basis points in June, July, August and November 2022 and February 2023, with the cash rate expected to hold at 1.60 per cent for the rest of 2023.

Meanwhile, technical assumptions in the RBA board minutes show the cash rate could increase to 1.75 per cent by the end of the year and hit 2.5 per cent by the end of 2023.

Economists are predicting this could potentially include a 0.40 percentage point hike next month.

New analysis by comparison site RateCity has found the average variable owner-occupier with a $500,000, 25-year principal and interest loan could see their monthly repayment rise by an extra $106 if the RBA hikes the cash rate by 0.40 percentage points in June.

But the pain gets worse later in the year, with RateCity predicting the same borrower would be paying a staggering $443 more each month on their repayments by Christmas if the cash rate does reach 1.75 per cent as predicted – a number which skyrockets to $651 per month if the cash rate gets to 2.50 per cent by the end of 2023.

And it’s only going to get worse for homeowners. Pictures: iStock

In a recent press conference, RBA governor Lowe expressed his “hope” a cash rate of around 2.5 per cent would be both neutral and achievable.

But RateCity.com.au research director Sally Tindall said nobody knew how high the cash rate would climb, it was all but certain there would be “plenty more” in the months ahead.

“The average borrower is potentially staring down the barrel of $651 hike in total to their monthly repayments by the end of next year. That’s like buying a new dishwasher every single month,” she said.

“Sit down and work out what your repayments will look like, even if your rate rose by 3 per cent. If you don’t think you’ll be able to make these higher repayments, take action now.

“The longer you wait to make changes, the bigger the bind you’ll find yourself in.”

Banks respond to rate hike

All of Australia’s banking juggernauts responded to this month’s historic rate rise within hours.

The Commonwealth Bank was first to react to the RBA’s bombshell, matching the RBA and lifting its home-loan variable interest rates by 0.25 per cent.

CBA, which is Australia’s largest bank and has a quarter of all home loans in the country, said the increase would come into effect from May 20.

ANZ followed suit shortly after CBA, announcing it would also pass the full amount on to home loan customers from May 13.

Westpac later announced it would also follow and increase home loan variable interest rates by 0.25 per cent for new and existing customers from May 17.

Homeowners could be paying an extra $443 per month by Christmas. Picture: iStock

And the morning after the announcement, NAB became the final “big four” bank to respond, confirming its standard variable home loan as well as its reward saver bonus interest rate would increase by 0.25 per cent from May 13.

Ahead of the RBA announcement, ANZ, NAB, and Westpac had all predicted a 0.15 per cent raise at the start of May, while the Commonwealth Bank had been expecting a rate rise in June, after the federal election was behind us.

All four were caught off guard by the central bank’s decision to increase the cash rate by 25 basis points, a scenario few insiders saw coming.

Originally published as Aussie homeowners facing $443-a-month repayment hike as interest rate nightmare grows