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Leading and Property Update




Summary

Mortgage holders across Australia let out a collective sigh again this month as the RBA increased the cash rate by 0.25% to 3.85% in its May meeting which will have a flow on effect to home loan interest rates.


Content

Mortgage holders across Australia let out a collective sigh again this month as the RBA increased the cash rate by 0.25% to 3.85% in its May meeting which will have a flow on effect to home loan interest rates. The total rise from the ultra-low rate implemented during COVID is 3.75%. Any borrower that has had all of those rate increases passed onto them, with an average loan size of $500,000, has seen their monthly repayments increase by more than $1000. The vast majority of economists surveyed prior to this month’s meeting did not believe we would see another rate hike given the RBA’s history of pausing for a quarter to review impacts on the broader economy. Hundreds of thousands of Australians also have a fixed rate loan that was taken out during this ultra-low period that is due to expire this year. Many of them will experience interest rate jumps of 3-4% which will emphasise this jump compared to those that had a gradual increase. As these interest rate changes start to hit household budgets, mortgage holders should look to their biggest ticket item first which is generally a home loan repayment. If the same average mortgage holder was to look to another bank to reduce their home loan interest rate by an average of 0.5%, they could be savings more than $200 per month in interest alone. Not to mention that banks are fighting for new borrowers with generous one-off payments of $2-4000 upfront. The big question now is where will they will go to from here? Many economists believe that rates will start to drop off towards the end of 2023, and that this will be the last of the rate hikes for a while, however, they have said that before…

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