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How high will rates go? Here's what experts think about the RBA cash rate

How high will rates go? Here's what experts think about the RBA cash rate

After over a decade of cutting the cash rate, the Reserve Bank of Australia is forecast to hike the cash rate periodically over the next two years. And homeowners and would-be borrowers are probably wondering how high their home loan rates will go?

The big four banks have all cast their predictions for the next few years of cash rate movements. Every bank but ANZ has tipped that the Reserve Bank will hike rates by another 50 basis points again at its next meeting in July.   

Experts from the big banks have tipped that we may expect a cash rate beginning with a ‘2’ in 2023. This may mean that interest rates on home loans could rise between 2-3% over the next two years. And for the average owner-occupier paying a variable rate, your home loan rate could reach 5.14% by 2023.

Keep in mind that these are just predictions, and that the big banks are subject to change these forecasts. Figures are accurate at the time of publishing.

The big four bank cash rate hike predictions:

  • CommBank – 2.10% cash rate by December 2022
  • Westpac – 2.35% cash rate by February 2023
  • ANZ – 2.00-3.00% cash rate by December 2022
  • NAB – 2.00-2.35% cash rate by December 2022

If you are currently on a variable rate home loan, and your lender passes on these rate hikes in full, you may find your home loan repayments significantly more expensive in the next two years.

The average existing owner-occupier variable home loan rate in April 2022, prior to the first cash rate hike, was 2.89% according to the Reserve Bank of Australia.

Interest rate difference based on big four bank predictions

Starting MonthAverage rates based on CBA forecastAverage rates based on Westpac forecastAverage rates based on ANZ forecastAverage rates based on NAB forecast

Apr-22

2.89%

2.89%

2.89%

2.89%

May-22

3.14%

3.14%

3.14%

3.14%

Jun-22

3.64%

3.64%

3.64%

3.64%

Jul-22

4.14%

4.14%

3.89%

4.14%

Aug-22

4.39%

4.39%

4.39%

4.64%

Sep-22

4.64%

4.39%

TBD

4.64%

Oct-22

4.64%

4.39%

TBD

4.64%

Nov-22

4.89%

4.64%

TBD

4.89%

Dec-22

4.89%

4.89% - 5.89%

5.14%

Feb-23

5.14%

Source: Big bank rate hike forecasts as of 07/06/2022, RateCity.com.au

How high could your repayments go?

RateCity has crunched the numbers on how these rate hikes could impact a 25-year, $500,000 home loan.

Assuming that your lender passes on every single cash rate hike in full to your home loan as per the NAB predictions, and that you are currently repaying a variable rate loan, you may find that your monthly repayments are $606 more expensive in August 2024 compared to April 2022.

How much more you may pay by 2024

Home loanMonthly repayments
Average rate in April 2022 – 2.89%$2,343
Average rate in December 2022 – 5.14%$2,964
Difference$606

Source: RBA average owner-occupier variable rate for existing customers, April 2022. RateCity.com.au. Note: Based on a 25-year, $500k home loan, comparing repayments with RBA average rate in April of 2.89%, versus a 225 basis points increase from continuous cash rate hikes to NAB’s predicted peak of 2.35% in December 2022. Does not factor in fees.

This is a significant amount for homeowners to find within their household budgets, the equivalent of around two utilities bills or a long weekend trip away. Homeowners may want to take action now to help free up some space in their budget to accommodate higher repayments.

Alternatively, you may want to consider:

  • Making extra repayments now to chip away at your loan principal (if your lender allows extra repayments without penalty)
  • Paying into an offset account or redraw facility to help reduce your interest charges
  • Refinancing to a lower-rate lender if it suits your financial needs and budget.

Compare lower-rate home loans

Company
Product

First Rate

Real Time Rating™

4.35

/ 5
Interest Rate

2.28

% p.a

Variable

Comparison Rate*

2.28

% p.a

Repayment

$1,313

monthly

Real Time Rating™

4.35

/ 5
Go to site
Company
Product

& Basic Home Loan

Real Time Rating™

4.77

/ 5
Interest Rate

2.34

% p.a

Variable

Comparison Rate*

2.34

% p.a

Repayment

$1,322

monthly

Real Time Rating™

4.77

/ 5
Go to site
Company
Product

Select Home Loan

Real Time Rating™

4.14

/ 5
Interest Rate

2.74

% p.a

Variable

Comparison Rate*

2.37

% p.a

Repayment

$1,382

monthly

Real Time Rating™

4.14

/ 5
Go to site
Company
Product

Select Variable Home Loan

Real Time Rating™

4.14

/ 5
Interest Rate

2.74

% p.a

Variable

Comparison Rate*

2.37

% p.a

Repayment

$1,382

monthly

Real Time Rating™

4.14

/ 5
Go to site

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This article was reviewed by Mia Steiber before it was published as part of RateCity's Fact Check process.

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