Hiking interest rates would result in homeowners paying hundreds extra a month

With interest rates likely to rise this year, check our calculator to see how much extra you will have to stump up to pay off your mortgage.

The average homeowner will be coughing up close to $170 a month extra to cover their mortgage by the end of the year amid growing expectations the Reserve Bank will soon start hiking interest rates.

Stronger than expected inflation and a robust jobs market has sharply reset the outlook for interest rates with growing numbers of economists tipping the RBA to begin lifting the nation’s cash rate in August.

The nation’s central bank has not increased its benchmark interest rate since November 2010, meaning a generation of homeowners have never experienced a lift in the cost of their mortgage.

It sits at a record low of 0.1 per cent.

Homeowners Nicholas and Magdalena Murphy with children Teddy and Alex in Point Cook.

Deutsche Bank Australia chief economist Phil O’Donoghue expects the RBA to hike the cash rate by 0.15 percentage points in August, taking it to 0.25 per cent.

He then expects another two 0.25 percentage point hikes with the cash rate set to close the year at 0.75 per cent.

Analysis from RateCity shows a homeowner with a $500,000 mortgage paying a variable mortgage rate of 2.98 per cent over 25 years would need to find an extra $168 a month by December if those predictions pan out.

The hikes would take payments from $2366 a month to $2544 a month.

A homeowner with a $300,000 mortgage would need to find an extra $101 per month while those with a $1m mortgage would need to cough up $336 a month extra.

Westpac and AMP have also pencilled in a more conservative short-term outlook, tipping two rate hikes by the RBA with the cash rate expected to hit 0.5 per cent in October.

It’s expected interest rates will be hiked twice in 2022.

If those predictions come true, a homeowner with a $500,000 mortgage would celebrate Christmas by needing to find an extra $103 per month.

RateCity director Sally Tindall said rate rises were coming, and coming faster than previously expected.

“Australia hasn’t seen an RBA rate rise in more than 11 years, which means there’s a generation of mortgage holders who may be in for a shock when their variable repayments automatically start rising,” she said.

“If you’re on a variable rate, check to make sure it’s competitive and think about paying down extra debt now.”

Prawesh and Neha Bohora have just bought their first home in Caroline Springs in Melbourne’s west.

The pair, who work as a supermarket department manager and registered nurse, decided to fix their interest rate to give them certainly over what they will have to pay.

“I was unsure about the interest rate going up,” Mr Bohora said.

“I’ve secured my interest rate. It’s pretty good, I can’t expect more. What I’m getting is good.”

The couple first looked to buy in Melbourne’s northern suburbs but headed west as prices rose.

“Properties are going through the roof,” Mr. Bohora said.

YPA Estate Agents Caroline Springs director Joel Rawle said growing numbers of buyers were opting for fixed mortgage rates.

“They never used to,” he said.