Interest rates Australia: Mortgage owners to pay extra $991 by Christmas

Economists have forecast more interest rate rises as the Reserve Bank of Australia fights to curb inflation, leaving households hundreds of dollars worse off.

The average Australian mortgage owner could pay an extra $991 on their mortgage by the end of the year, if the Reserve Bank of Australia passes on all of its predicted rate rises.

Commonwealth Bank – which was the first of the Big Four banks to match the RBA’s July rate increase – believes Australian homeowners could be slogged with a combined 0.75 per cent increase by the end of the year, 7 News reports.

The chief economist for CommSec, Craig James believes the RBA will increase the cash rate by 25 basis points in August, September and again in November.

Under these predictions, the official cash rate will increase to 2.1 per cent from 1.35 per cent by the end of the year.

“We can expect further interest rate hikes in coming months. This is the most aggressive the Reserve Bank has ever been – we’ve had three interest rate hikes in a row and the last two were 50 basis,” said Mr James.

“At 2.1 per cent, the Reserve Bank would basically stop there for a while and see what impact that has on the economy.”

A CommSec economist predicted that borrowers will face at least three more interest rate rises by the end of 2022. Picture: David Crosling/NCA NewsWire

Using these rate predictions, a mortgage owner with the average Australian mortgage of $615,000, could be expected to spend an extra $991 on their repayments between July to December. This is based on someone with a 30-year-loan, with the average Australian variable interest rate of 3.93 per cent.

According to Moneysmart’s mortgage calculator, an increase from 3.93 per cent to 4.18 per cent would see the monthly repayment increase by $89, or from $2911 to $3000. A further increase of 25 basis points in September would see repayments increase to $3091, which means borrowers would need to fork out an extra $180 each month, compared to what they were paying in July.

Should banks pass on another 0.25 per cent increase in November, monthly repayments would further rise to $3182, representing a $271 increase in repayments in just four months.

This means that between July to December, the average borrower would have paid $991 more in repayments, under the interest rate rises forecast by Mr James.

It’s also worth noting that these figures don’t factor in monthly account fees charged by some lenders.

However, economists have been varied in their interest rate forecasts. At the most dire end, the ASX 30 Day Interbank Cash Rate Futures predicted the cash rate could increase to 3.5 per cent by May next year.

If the rate hike eventuates, borrowers with a $600,000 loan could pay more than $5000 more on their mortgage in just one financial year.

ANZ Capital chief economist Shane Oliver previously told news.com.au that this was unlikely due to the catastrophic impact this would have on Australia’ economy. He said a rate increase to 3.5 per cent would likely “crash the property market” and push the market into a “deep recession”.

“For someone who has a $600,000 loan, their mortgage bill has already increased by around $420 a month, which is more than $5000 extra a year,” he said.

“If there is an increase of around 3 per cent to the cash rate, this would increase to around $12,000 a year.”

“If that were to occur, combined with the increase to the cost of living, I think it would push the economy into recession.”

While interest rates have been forecast to hit 3.5 per cent, this figure was considered unlikely. Picture: John Gass/NCA NewsWire

The Governor of the RBA, however, vaguely hinted that it was “reasonable” for interest rates to hit 2.5 per cent. Speaking to ABC’s 7.30 in June, he said this could be an option the RBA would need to implement in order to lower inflation, which he predicted could hit 7 per cent by Christmas.

Despite this, he stressed the forecast was not set in stone.

“It’s unclear at the moment how far interest rates will need to go up to get that,” Dr Lowe said.

“I’m confident that inflation will come down over time but we’ll have to have higher interest rates to get that outcome.”

Originally published as Interest rates Australia: Mortgage owners to pay extra $991 by Christmas