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How an interest rate rise could affect you

All signs point to the Reserve Bank of Australia lifting official interest rates in the coming months, meaning thousands of households will have to contend with their mortgage repayments increasing.

The last time interest rates went up was in November 2010, and since then the average home loan has ballooned in size.

On a $500,000 loan (OO, P&I) taken out over 25 years with an interest rate of 3.50% p.a., monthly repayments would go up by $68 under an increase of 0.25% and $136 under an increase of 0.50%. 

And if the cash rate rises to 2% over the coming tightening cycle, as many economists believe, those repayments could jump up an extra $538 each month, or $6,450 over the year.

To find out how much your repayments would increase under rate hikes of various sizes, try our rate change calculator below.

Home loan rate change calculator

Loan details

Rate change

Repayment change if rates go up

Westpac chief economist Bill Evans has said that Australians have built up a great deal of savings over the last two years, thanks to government income support and a pandemic-induced curb on spending.

“Much of this excess savings will be on the balance sheets of high income/low debt households. But it is also sitting with low-income/high debt households that will act as a potential buffer to higher rates,” he said.

“Banks report that borrowers are, on average, two years ahead on their mortgage repayments while there has been a $100 billion surge since Covid in balances in redraw facilities.”

Nonetheless, many households will still be tested by higher rates. Below, we’ve compiled a few things you can do to make sure your finances can withstand an eventual rate hike.

Refinance

If your current home loan rate isn’t all that competitive to begin with, consider refinancing to a better deal. This might involve switching to a different home loan with the same lender or finding a different lender altogether.

Fix your loan

Now might be a good time to switch to a home loan with a fixed interest rate. This would  protect you against any rate rises and ensure your repayments remain the same for a set period. Just keep in mind that fixed rate loans generally don’t come with flexible features like an offset account.

Set a budget

It’s always good to have a clear idea of how much money is coming and going each month, but that goes doubly so if an interest rate hike is around the corner. Start tracking your expenses and try to identify areas where you can cut back your spending.

Use an offset account

If you’ve been able to build up a savings buffer, keeping it in an offset account can help you save by reducing the balance on which your lender charges interest. For example, if you owe $250,000 on your mortgage and have $50,000 sitting in your offset account, you would only be charged interest on $200,000.

For more information about mortgage and lending trends, head over to our home loan statistics page. And if you’re in the market for a home loan, visit our home loan comparison page, or browse the selection below.

Home Loan Comparison Table - last updated 27 May 2024

Search promoted home loans below or do a full Mozo database search. Advertiser disclosure
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Mozo Editorial
Mozo Editorial

Mozo’s team of experienced journalists and money experts provide news, insights, practical guides and expert analysis to help you master your personal finances. We follow editorial guidelines that focus on accuracy, reliability and timeliness; helping you make informed financial decisions with confidence and the most of your hard-earned money.

* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

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