Say goodbye to variable rates under 3% as the RBA hikes by another 0.50%

Variable mortgage rates under 3 per cent are likely to disappear after the RBA today increased the cash rate by another 0.50 percentage points.

This is the first time the Reserve Bank has hiked the cash rate at four consecutive meetings as it tries to rein in inflation. As a result, variable mortgage rates are rising sharply for both new and existing borrowers

RateCity.com.au mortgage rate analysis:

• The average existing variable customer will be on an estimated rate of 4.61% if their lender passes on today’s hike in full.
• 6 lenders currently have variable rates under 3% - it’s possible there will be none once today’s rate hike is passed on.
• 113 lenders had variable rates under 3% 12 months ago.
• At the peak, in January 2022, 33 lenders offered variable rates under 2%.

Impact of today’s 0.50% RBA hike on existing variable rate customer

The average owner-occupier with $500,000 debt and 25 years remaining will see their monthly repayments rise by $140 in August, if their lender passes on today’s 0.50 percentage point hike in full.

If you combine the 1.75 percentage points of hikes since May, that’s an extra $472 a month for the average borrower, who had a $500,000, 25-year loan before the hikes began.

Impact of today’s RBA hike

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

Borrowers can take action now to help ease the pain

One way households concerned about their rising mortgage repayments can save money is by haggling with their bank or refinancing to a lower rate loan with another lender.

Following four consecutive RBA hikes, the average existing borrower with a $500,000, 25-year home loan will be on an estimated variable rate of 4.61 per cent. If they refinanced to a rate of 3.50 per cent, they could save an estimated $9,906 over two years, even after switching fees and forecasted RBA hikes are factored in.

How much average home loan customer can save by refinancing – over 2 years

Source: RateCity.com.au. Based on an owner-occupier paying principal and interest on a $500k loan with 25 years remaining. Starting rate is the RBA average existing owner-occupier variable rate and assumes banks pass the cash rate hikes on in full using Westpac’s RBA forecast.

RateCity.com.au research director, Sally Tindall, said: “Today’s hike could be the tipping point for families feeling the heat.”

“Three months ago, many economists were predicting the cash rate would hit this level by Christmas. No one thought we’d be here already within the space of four months,” she said.

“The RBA has a job to do and the faster it gets it done, the more successful it’s likely to be, but for many families these hikes are starting to sting.

“Households are now facing the fourth rate rise in as many months. We’ve also got inflation pressures pushing up prices at the supermarket, the petrol station, even the humble takeaway coffee is starting to spike. We’re going to see a real shift in people’s spending habits from here on in.

“Variable rate customers should not take these hikes lying down, and the good news is, many they aren’t. The latest ABS data shows in June $18.16 billion of home loans were refinanced – a record high.

“Families should really start putting pen to paper to come up with a financial strategy to get them through the next 12 months. For some households it’ll be a few nips and tucks to their budgets, but for others it’ll involve making tough decisions.

“If you get into trouble, put up your hand early and ask for help. Banks don’t want to see you default on your mortgage any more than you do,” she said.

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