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Borrowers could pay $427 a month more in 2 years, if Westpac forecast realised

Borrowers could pay $427 a month more in 2 years, if Westpac forecast realised

The average mortgage holder could end up paying $103 more in monthly repayments on their home loan by the end of this year, and $427 a month more by March 2024, should Westpac’s cash rate forecast be realised. 

In a report released today by Westpac, the bank’s chief economist, Bill Evans, has said the cash rate will go up to 1.75 per cent by March 2024. 

Westpac has brought forward its forecast for the first interest rate rise to August 2022, when it expects the cash rate to increase to 0.25 per cent from 0.1 per cent, followed by a further increase in October to 0.5 per cent. 

The Reserve Bank has been steadfast in its belief the cash rate won’t rise until at least 2023. However, an increasing number of economists are tipping this will come sooner. 

If Westpac’s forecasts are realised, the average variable rate borrower with $500,000 owing on their mortgage could see their repayments rise by $103 a month by the end of October. This estimate includes principal they would have paid off in this time and assumes that the borrower has 25 years remaining on their loan.

Impact of forecasted cash rate hikes on average variable rate borrower, October 2022

Balance owingRepayments todayRepayments - October 2022Difference
$500,000

$2,366

$2,469

$103

$750,000

$3,549

$3,703

$154

$1M

$4,732

$4,938

$206

Note: based on an owner-occupier paying principal and interest on the average existing customer variable rate of 2.98% and 25 years remaining. Loan size is based on amount owing in Jan 2022. Rate hikes are based on Westpac forecasts published 20.01.22.

Impact of forecasted cash rate hikes on average variable rate borrower, March 2024

Balance owingRepayments todayRepayments - March 2024Difference
$500,000

$2,366

$2,793

$427

$750,000

$3,549

$4,190

$641

$1M

$4,732

$5,586

$854

Note: based on an owner-occupier paying principal and interest on the average existing customer variable rate of 2.98% and 25 years remaining. Loan size is based on amount owing in Jan 2022. Rate hikes are based on Westpac forecasts published 20.01.22. Assumes rate hikes in 2023 and 2024 occur at the end of each quarter.

Sally Tindall, research director at RateCity.com.au, said homeowners should prepare for higher costs, and if need be, batten down the hatches.

“While the exact timing of the next cash rate hike is still not certain, borrowers need to know that rates are on the rise – it’s just a matter of when,” she said.

“Recent APRA data shows the average borrower is currently 45 months ahead on their repayments, however, that doesn’t mean every borrower will be able to take these rate hikes in their stride.

“One way you can prepare for future hikes is to get ahead on your repayments now while rates are still low. The lower your loan size when rates do rise, the less pain you’ll feel. 

“Variable borrowers should also check what rate they’re on now, and potentially switch to a more competitive lender or at least ask their bank for a discount. That way, when the cash rate does rise, they’ll at least be coming off a low base.

“RBA data shows the average existing variable rate customer is on a rate of 2.98 per cent, while the average new customer is on a variable rate of 2.59 per cent – that’s a 0.39 per cent difference worth haggling for.

“If you do manage to move on to a lower rate, consider putting any savings back into your loan, which will also help minimise the impact of future rate rises,” she said.

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This article was reviewed by Research Director Sally Tindall before it was published as part of RateCity's Fact Check process.

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