Financial comparison website Canstar has analysed monthly payments for mortgage holders, which it says could increase rapidly after Tuesday’s Reserve Bank interest rate announcement.
Each of the big four banks have lifted their variable rates, with Suncorp Bank the latest to raise its rate by 0.25%.
Canstar says monthly repayments for a borrower with a 30-year $500,000 mortgage would increase by $68, while a borrower with a $1m mortgage could expect their repayments to rise by $88 per month.
Canstar finance expert Steve Mickenbecker (pictured) said the impact on the economy would be positive with slowing inflation, higher wage growth and borrowers protected from higher repayments.
“The 5.1% inflation rate shocked the markets and made an increase in the Reserve Bank’s cash rate near inevitable this month,” Mickenbecker said.
“At 0.25%, it is at the midrange of expectations by lifting the cash rate to 0.35%. As the first upward move of the Reserve Bank’s cash rate in over 11 years, it puts a generation of borrowers into the unknown territory of increasing loan repayments.”
Read more: Big four banks lift variable interest rates
Mickenbecker said it would not take long for borrowers to see their rates move with the major banks and other lenders increasing its variable rates.
“The banks will pass on the Reserve Bank cash rate increase to existing borrowers who have been immune to the rapid rise of fixed interest rates of recent months,” he said.
“Only those who still have time left on their fixed rate loan term will be spared.”
The finance expert said increases to repayments might not sound like a big stretch but with wage growth having fallen behind the cost-of-living rate, increases would add financial pressure on many households.
“The many borrowers who are ahead on their loan repayments and seen their equity grow over the last two years in particular will not be too stressed. But it's a different story for borrowers who have stretched to get into a house in the last 12 months or so and haven’t had time to make extra repayments or build equity,” he said.
Read more: RBA lifts official cash rate
Based on history, Mickenbecker said there would be a reasonable expectation within two years home loan interest rates would be 1.5% to 2% higher than today.
“A rate increase of 2% on a $500,000 average variable rate loan over 30 years would see monthly repayments rise by $575 and more than $200,000 in additional interest charged over the life of the loan,” he said.
“Borrowers can expect their home loan rate increase to at least match, but more likely exceed the Reserve Bank’s as occurred in between June 2009 and June 2011 when the cash rate rose 1.75% and average home loan rates went up 1.90%.
Mickenbecker’s advice for mortgage holders was to stay in front of rate rises and make sure they were getting a low rate.
