Last Updated: 18th June, 2024
Are you expecting changes in your interest rate? Use our interest rate rise calculator to estimate the impact of potential increases on your repayments and plan ahead for your mortgage.
Interest Rate Rise FAQs
The pause on cash rate rises in April 2023 came as a huge relief to many borrowers; however, experts still expect one more rate rise ahead from the Reserve Bank. The majority of the major banks agree that the cash rate will peak at 3.85%. Interest rates have risen from a record low of 0.1% to 3.6% since May 2022. With consumer spending slowing down and the inflation rate falling, many are anticipating the end of the aggressive rate hikes.
Here are the Big Four’s cash rate peak predictions, following the RBA’s April 2023 announcement:
- ANZ – 3.85%
- CBA – 3.85%
- NAB – 3.60%
- Westpac – 3.85%
Note: These forecasts are subject to change.
Interest rates can rise due to various economic factors, including a booming economy, rising inflation, and increasing house prices. When the economy grows too quickly, the RBA may increase interest rates to ‘put the brakes’ on the economy and prevent it from overheating.
Inflation plays a significant role in causing interest rates to rise. The RBA uses interest rates as its primary tool to control inflation. When inflation rises, the RBA increases the cash rate, causing interest rates to rise, which reduces general spending and increases savings in the economy, which should ultimately bring the cost of goods and services down, or at least slow their rate of increase. Currently, inflation in Australia is nearly 7%, and the RBA aims to bring it down to between 2% and 3%.
Keep in mind that there are various factors that cause inflation to rise, like disruptions caused by pandemics such as COVID-19, supply-chain issues and global conflicts that affect energy and agricultural prices.
An interest rate rise will increase the cost of borrowing money, including home loan repayments. If you have a variable interest rate on your mortgage, an interest rate rise will lead to an increase in your monthly repayments, as the interest charged on your loan will be higher. This means you will have less disposable income to spend on other things.
It’s important to remember that an interest rate rise doesn’t just affect mortgage repayments. It can also impact other loans, such as personal loans, car loans, and credit-card debt. This is because the interest rate on these loans is often linked to the cash rate set by the RBA as well.
Overall, an interest rate rise can have a significant impact on your budget and cashflow. It’s important to prepare for the possibility of an interest rate rise by budgeting for higher repayments and considering ways to reduce your debt, such as making extra repayments on your mortgage or consolidating high-interest debt into a lower-interest loan.
Simply put, when borrowing money to buy a house becomes more expensive, fewer people are interested in buying, causing house prices to drop. On the other hand, if borrowing money becomes cheaper, more people may consider buying a house, which leads to an increase in house prices. So, the cost of borrowing money has a significant impact on the housing market.
But it’s not just interest rates that make house prices go up or down. There are other things that affect home values, too, like income, the number of people moving to an area, the cost to build houses and the supply of homes available. So you have to think about all of these things if you want to understand what will happen to house prices in the future.
A rise in interest rates could increase repayments on your debts. This could eat into your savings and income. Families and small businesses may find it harder to manage increased repayments on mortgages and other debts, and it could lead to reduced consumption and investment. On the flip side, it could increase the incentive for people to save instead of spending.
When the RBA raises the official cash rate, lenders also increase the variable interest rates on their home loans, thus increasing mortgage repayments. People at the end of a fixed-rate period will not be able to re-fix their loans on the same terms. Finally, borrowers may also be able to borrow less because they need to devote more money to repay the same mortgage.
If your interest rate is rising, there are a few things you can do:
- Speak to a mortgage broker. They will help you assess your situation and offer to help you refinance or negotiate with your lender on your behalf.
- Switch from a variable rate to a fixed rate. This gives you certainty over your repayments.
- Make extra repayments with an offset account.
- Compare your monthly loan repayments before and after the interest rate increase to find out how much more you will pay. You can do this by using the calculator above.
- Improve your financial situation by taking actions such as setting a budget, cutting unnecessary spending, choosing principal-and-interest repayments over interest-only, and clearing your debts.
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