While the Reserve Bank has left the cash rate unchanged at 0.10 per cent today, a rate hike is on the horizon in 2024 – the same time many homeowners will be coming off a 3-year fixed rate.
It has now been more than a decade since the RBA increased official rates, with the last hike in November 2010. Since then, the RBA has cut the cash rate 18 times by 4.65 percentage points.
In that time, 1,005,661 first home buyer owner-occupier loans settled, according to ABS Lending Indicator data in original terms.
Someone taking out a $500,000, 3-year fixed rate with a big four bank today will face a $434 jump in monthly repayments when they move onto the revert rate, assuming there is one RBA hike early in 2024.
Estimated cost of repayments coming off a 3-year fixed rate $500k loan
|Average Big 4 rate|
Estimated cost of repayments coming off a 3-year fixed rate $1m loan
|Average Big 4 rate|
Notes: Based on an owner-occupier paying principal and interest, on a 30-year loan on the average big four bank lowest 3-year fixed rate. Assumes rate reverts to the discounted variable rate, factoring in one 0.25% rate hike in early 2024.
Sally Tindall, research director at RateCity, said: “It’s incredible to think there are over one million homeowners who have never experienced a cash rate hike.”
“The concern is, some people fighting tooth and nail to get into the property market today haven’t thought about whether they can meet the repayments in three- or four-years’ time,” she said.
“Fixed loans in a rising interest-rate market can be a great tool to help people budget, that is until the music stops.
“When applying for a mortgage, banks factor in a 2.5 per cent buffer on the ongoing rate. However, people should stress-test the loan for themselves.
“If you’re taking out a fixed home loan today, make sure you can afford the repayments when the revert rate kicks in, factoring in potential RBA hikes and a safety net.
“Consider re-fixing, refinancing or renegotiating your home loan to lessen the blow when your fixed rate term ends.
“Over one million first home buyers have only experienced cash rate cuts. The next hike might still be three years away but when it comes to a 30-year mortgage, you need to think long term,” she said.