Interest Rate Rises vs. Your Mortgage

Interest rates have increased again by 2.60%, another 25 points. How will this interest rate rise effect your mortgage repayments, and will it take effect immediately?

It’s unbelievable that the cash rate increased from 0.10% at the start of May to 2.60% recently this month, making this the sixth month in a row where we have experienced an interest rate rise.

Several economists were stunned as they predicted an even higher increase this month. The cash rate hasn’t risen this high since July 2013, almost ten years ago.

In a statement, RBA Governor Philip Lowe said more increases would be needed in the near future.

“The cash rate has been increased substantially in a short period of time. Reflecting this, the (RBA) board decided to increase the cash rate by 25 basis points this month as it assesses the outlook for inflation and economic growth in Australia” – Governor Lowe

Another Interest Rate Rise = Extra Payments On Your Mortgage

How much more will your mortgage payments be each month?

Banks are more than likely to follow the RBA’s footsteps and raise the interest rate on your variable home loan unless you have a fixed-rate mortgage.

For example, let’s use the scenario if you own your property and have a 25-year loan of $500,000, including payments for principal and interest. This month’s 2.60% rate rise could increase your monthly mortgage payments to almost $75 per month. Compared to the start of May, that’s an extra $685 on top of your mortgage.

Here’s another example, if you’ve got a loan of $750,000, your repayments could increase to almost $110 a month. Again, comparing this to the start of May, this is an extra $1,030.

If you’ve got a loan for $1 million, your monthly mortgage repayments will increase to nearly $150. That’s an increase of $1,380 since the start of May.

How can Mike help you save on your mortgage repayments?

Will This Rate Rise Take Effect Immediately?

As soon as the RBA officially increases the cash rate, your bank will announce its interest rate rise accordingly (with a notice period) for variable interest rates within the next couple of days.

How Exactly Will This Work?

Here’s an example of how this works and how your mortgage repayments will change.

  • You will pay your mortgage payments on the 20th of every month
  • Your lender will send you an announcement on the 7th of this month (the 7th of October) stating their rates will increase, with a notice period of 30 days before this will take effect
  • When it reaches the 20th of October, your mortgage payments wouldn’t have changed because it hasn’t reached 30 days
  • On the 6th of November, the 30-day notice period would have passed, and the interest rate you are currently being charged would increase to the new amount stated in the announcement specified by your lender
  • Your monthly payment on the 20th of November will be the new higher rate calculated from the 6th of November. By December 20th, your monthly payment will be the total amount of the new rate.

Concerned About Your Mortgage Rates? Reach out.

If you are concerned about the current interest rate rise and how this will affect your monthly budget, reach out to me for a chat.

I can assist you in putting together a plan to help you move forward so you can confidently repay your mortgage. Some options we might discuss include refinancing, paying off debts, starting an offset account, and refinancing (to increase your loan and reduce monthly payments).


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