Another 0.25% RBA hike likely tomorrow – how high could repayments go?

The Reserve Bank is tipped to hike the cash rate again tomorrow by 0.25 percentage points, taking it to 3.10 per cent – the highest rate in over a decade.

As RateCity.com.au mentioned on Wednesday, another 0.25 percentage point rise would mean the average borrower with a $500,000 loan before the hikes started in May could soon be paying a total of $834 more a month on their mortgage.

0.25% HIKE IN DECEMBER: Increase in monthly repayments

Source: RateCity.com.au. Based on an owner-occupier paying principal and interest with 25 years remaining. Starting rate is the RBA avg. existing owner-occupier variable rate of 2.86% in April and assumes banks pass the hikes on in full.

How much could monthly repayments rise in total?

All four big bank economic teams expect the RBA will hike by 0.25 percentage points at tomorrow’s meeting, however, the peak of the cash rate still remains a contentious issue.

CBA’s current forecast has the cash rate stopping at 3.10 per cent tomorrow, but it has said there could be another hike next year, depending on this Tuesday’s statement.

At this stage, Westpac and ANZ are still expecting the cash rate to peak at 3.85 per cent in May.

If this happens analysis from RateCity.com.au shows the average borrower, with a $500,000 debt at the start of the hikes, could see their monthly repayments rise to an estimated $3,393 by May next year. This would be a total increase of $1,058 a month – or 45 per cent – since the start of the rate hikes.

For someone with a $1 million debt at the start of the hikes, their monthly repayments would rise to $6,786 by May 2023. This would be a total increase of $3,175 within 12 months (May 2022 to May 2023).

Loan sizes are based on a borrower’s debt at the start of the hikes and assumes they have 25 years remaining on their loan.

Impact on monthly repayments if cash rate gets to 3.85%

Source: RateCity.com.au. Based on an owner-occupier paying principal and interest on a variable rate of 2.86% in April 2022 with 25 years remaining on their home loan. Assumes the cash rate rises in line with Westpac and ANZ forecasts.

RateCity.com.au research director, Sally Tindall, said: “For the first time in seven months, the Board is likely to be mulling over the possibility of no hike to the cash rate – not something they have given any serious consideration to since April.”

“While no change to the cash rate is a possibility, it’s still an unlikely choice for the RBA,” she said. 

“The RBA is likely to take last week’s surprise inflation figures with a grain of salt. It’s hard to see how one month’s worth of data would stop the cash rate hikes in their tracks entirely.

“Annual inflation might have dropped down to 6.9 per cent but it’s still light years away from the RBA’s target band of 2 – 3 per cent. 

“With unemployment at the lowest level in almost half a century, and a natural pause next month, the RBA won’t want to squander its last opportunity to hike rats this year.

“While the RBA Board still does not know how high the cash rate will go, people should prepare for rates to rise further next year.

“If you’ve got a mortgage and are worried about rising rates, do a stress test on your loan. Work out what your repayments will be if the cash rate rises to 3.85 per cent and start paying that higher amount now.

“Not only will it help you sleep at night, knowing you’ve actually got this, but it will also help you build a buffer in your mortgage just in case you hit a bump in the road.

“If you can’t afford these higher repayments, put your budget under the microscope to see where you can make cutbacks,” she said.

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