How interest rate rises will impact your mortgage

Australians face increases to their mortgage repayments after the Reserve Bank of Australia raised the cash rate by 0.25 percentage points.

Mortgage repayments will increase after the Reserve Bank of Australia raised the cash rate by 0.25 percentage points — the first time it has done this since 2010.

Most analysts thought the RBA would have to move after inflation hit 5.1 per cent over the past year to March.

On Tuesday it raised the cash rate from 0.1 per cent, to 0.35 per cent, which will see mortgage repayments increase by around $68 a month on a $500,000 loan if this is passed on by banks.

AMP Capital chief economist Shane Oliver told news.com.au earlier that if Australia had not been in the middle of an election campaign, there would be no debate on whether the RBA would move.

He said inflation is so high the case for higher rates is overwhelming.

“To not raise rates, would likely see the RBA accused of being interfered with politically,” he told news.com.au.

There is a general consensus the RBA would at least increase rates by the amount of the last rate cut, which was 0.15 percentage points.

However, some thought it may consider this amount too small to make much of a difference in the economy, and it could instead chose to lift rates by 0.25 percentage points, which is an increment it has generally used in the past.

AMP went further, predicting rates could rise even higher – by 0.4 percentage points.

Mr Oliver believes rates could be 1.5 per cent higher by the end of the year, and 2 per cent higher by mid next year.

When will people have to start paying?

While the RBA sets the cash rate, people’s mortgages will only become more expensive once individual banks pass the increase on to their customers.

Generally the banks announce what they intend to do soon after the RBA has released its decision. Mr Oliver thinks banks will pass on the full amount of any rate hike.

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Each bank will decide whether to increase rates in line with the Reserve Bank of Australia’s decision. Picture NCA NewsWire / Emma Brasier.

“Whatever the RBA does, the bank’s standard variable amounts will likely go up by the same amount,” Mr Oliver said.

“I think within a few days most customers will be getting a letter from their bank about a rate rise.”

What’s the increase to my mortgage repayments?

The RBA’s cash rate is currently 0.1 per cent, but the average standard rate among banks is at 5.1 per cent.

Mr Oliver said most customers with variable loans would only be paying interest of around 3.5 per cent.

Repayments on a principal and interest loan of $500,000 with 25 years remaining, would increase by $68 a month if there was a 0.25 percentage point increase (to $2571 a month), with a rate rise of 0.25 percentage points from 3.5 per cent to 3.65 per cent, according to Mozo’s online calculator.

They would increase to $136 with a 0.5 percentage point increase, and $567 if there was a 2.0 increase.

You can check the impact on your mortgage in the table below.