RBA interest rates: How much more you’ll pay if your bank passes on the full 0.5 percentage rate rise

The size of the Reserve Bank of Australia’s latest official cash rate rise has surprised many, with economists previously having tipped an increase of between 0.25 and 0.4 basis points. The increase — which marks the first time since 2000 the RBA has lifted its cash rate target by more than 25 basis points at a monthly meeting — is set to squeeze many household budgets. For mortgage holders, it comes as a bitter blow after last month’s hike saw their repayments rise as they also struggled to rein in expenses weighed down by soaring inflation that has added to the cost of almost everything — from petrol and white goods and electronics to the weekly shop. RateCity says the RBA board’s move to increase the official cash rate to a higher-than-expected 0.85 per cent could see some borrowers slugged an extra $265 extra a month on their repayments. The comparison site has calculated what the hike will mean if banks passed on the full increase. The figures are based on an owner-occupier paying principal and interest with 25 years remaining on the average variable loan: “The rate hikes are not expected to end today,” RateCity said. “Technical assumptions in the RBA board minutes presume the cash rate could increase to 1.75 per cent by the end of the year and hit 2.5 per cent by the end of 2023. “If this happens, the same borrower with a $500,000 loan balance could see their monthly repayments rise, in total, by $652 a month by Christmas next year.” The hike comes as the national housing market continues to lose steam — but with small gains still reported in Perth — due in part to the rising interest rate environment. Mortgage Choice national sales director David Zammit said the RBA had last month sent a clear message that it had started on a path towards normalising monetary policy and further rate rises may be required. Recent Mortgage Choice home loan data showed a slight uptick in the proportion of borrowers choosing to refinance – from 38 per cent in April to 41 per cent in May. “My advice to borrowers and prospective buyers is to speak to a mortgage broker to ensure you’re getting the right loan for your needs. Interest rates may be rising but there are still some great deals in the market and your broker can help you find them,” Mr Zammit said. The pain from Tuesday’s official cash rate rise could also be felt by renters, with many investment borrowers set to pass some of the extra financial stress onto people renting their homes. “While the rise in monthly repayments this month is relatively moderate, homeowners need to ready themselves for sizable hikes in the months to come,” RateCity.com.au research director Sally Tindall said “These rate hikes aren’t going to magically cure Australia’s inflation woes. The RBA will need to hike again, potentially as early as next month and from there they could continue to come thick and fast to get inflation under control.” Canstar’s money expert Effie Zahos said borrowers were being hit with higher costs from “every side” right now, leaving “little wiggle room in household budgets.” “Australians are seeing price hikes across several household bills,” she said. “When you get hit with higher costs on just about every household bill, juggling the extra costs can become difficult as consumers need to be efficient with where they redirect any savings. “It’s not just homeowners doing it tough through higher loan repayments. While interest rates don’t have a direct impact on rental values they do have some indirect consequences, which could see rental prices move even higher.”