Everything you need to know about the interest rate rate rise

What you need to know about interest rates rising

The era of record low interest rates for homeowners is over. On Tuesday, the Reserve Bank of Australia lifted the cash rate for the first time in almost 12 years from a record low of 0.1 per cent to 0.35 per cent — while signalling more rises are on the way.

The hike comes amid soaring inflation which has hit 5.1 per cent – the highest single jump in 20 years.

Why did the rate increase?

One of the RBA’s main goals is to keep inflation between two and three per cent. Raising the cash rate is one way it can reduce inflation, by making money more expensive and reducing demand for goods and services.

What if I have a mortgage?

If you are on a variable rate, your monthly loan repayments will go up. The amount depends on whether your lender passes on the full increase made by the RBA. If you are on a fixed rate, you are immune to any rate rises until the fixed term comes to an end.

How does this actually affect my mortgage?

For example, for the average owner-occupier* with a 30-year loan of $300,000, their repayments will go up by $468 per year. A $500,000 loan = extra $792 p.a. An $800,000 loan = extra $1260 p.a. A $900,000 loan = extra $1404 p.a. A $900,000 loan = extra $1404 p.a.

How will it impact housing?

While an initial hike won’t have a huge impact, it’s likely the RBA will continue to raise rates. Recent RBA modelling shows that if the cash rate exceeds two per cent, property prices could drop by 15 per cent.

What about first home buyers?

The hike makes the cost of borrowing more expensive. Alternatively, it could take some heat out of the property market – which means it might be easier to negotiate a cheaper purchase price.

Can I still borrow money?

Yes, but it depends on how much. Banks assess a borrower’s capacity to repay their loan, so if the interest rate goes up, the assessment rate also goes up. This means you may not be able to borrow as much money as you could before.

What has the PM said?

In an initial attempt to distance himself, Prime Minister Scott Morrison said the cash rate was “not about politics”. When asked if the hike would impact the election result, Mr Morrison suggested he, and voters, don't always “see things through a totally political lens".

After the announcement, Mr Morrison told reporters the rate rise was "a result of our economy coming out of this pandemic" and would not be what sinks his chances come May 21.

What has Labor said?

Labor leader Anthony Albanese and shadow treasurer Jim Chalmers said the rise had left Morrison’s “economic credibility completely shredded”. Chalmers said in in address following the announcement that:

Are there more hikes to come?

Dr Lowe hinted that more rises were likely. Some experts have suggested interest rates could increase month on month until Christmas — reaching figures as high as two per cent.

Producer: Bianca Farmakis Read more

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