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RBA set to hike the cash rate again tomorrow – what it means for borrowers

RBA set to hike the cash rate again tomorrow – what it means for borrowers

The Reserve Bank is set to raise the cash rate again tomorrow, just five weeks after pulling the trigger on the first hike in over a decade.

If the RBA hikes the cash rate by 0.25 percentage points, the average owner-occupier with a $500,000 debt and 25 years remaining will see their repayments rise by a further $66. If the RBA hikes by 0.40 percentage points tomorrow, as some economists are forecasting, their repayments will rise by $106 a month in addition to last month’s hike.

Impact of potential RBA June rate hike – possible scenarios

Based on an owner-occupier paying principal and interest with 25 years remaining

Increase in monthly repayments
Loan size0.25% hike0.40% hike0.50% hike
$500,000

$66

$106

$133

$600,000

$79

$127

$159

$750,000

$99

$159

$199

$1 million

$132

$211

$265

Source: RateCity.com.au. Notes: based on an owner-occupier paying principal and interest with 25 years remaining on the average variable rate.

The rate hikes are not expected to end tomorrow. Technical assumptions in the RBA board minutes presume the cash rate could increase to 1.75 per cent by the end of the year and hit 2.5 per cent by the end of 2023. If this happens, the same borrower with a $500,000 loan balance could see their monthly repayments rise, in total, by $652 a month by Christmas next year.

Impact if rates rise to 2.50% by end of 2023

Based on an owner-occupier paying principal and interest with 25 years remaining

Total increase in mthly repayments

from the start of hikes

Loan sizeEnd of 2022

(cash rate 1.75%)

End of 2023

(cash rate 2.50%)

$500,000

$442

$652

$600,000

$531

$782

$750,000

$664

$977

$1 million

$885

$1,303

Source: RateCity.com.au. Notes: based on an owner-occupier paying principal and interest with 25 years remaining on the average variable rate and assuming the 0.25% May hike was passed on in full. Calculations are based on Westpac’s cash rate forecast to May 2023, with an additional 0.25% hike in September 2023.

RateCity.com.au research director, Sally Tindall, said: “The RBA is set to hike the cash rate again this month before the ink has dried on the May increase.”

“The RBA has a lot to consider this month with new, but in some cases, conflicting data to weigh up,” she said.

“A rate hike again this month is a near certainty, however, how high the RBA goes remains to be seen. The Board may stick to a standard 0.25 percentage point hike, but there’s every chance it will be more hard hitting.

“With petrol and grocery prices continuing to shoot up, the case for a 0.40 percentage point hike is strong.

“Central banks across the world are struggling to get on top of inflation, and the Reserve Bank of Australia does not want to be one of them. The Board will want to nip this in the bud.

“The RBA is likely to take a rapid-fire approach to rate hikes over the next six to 12 months.

“If the cash rate gets to 1.75 per cent by Christmas, the average home loan customer with $500,000 owing could see their monthly repayments rise by $442 in total. By Christmas next year they could be $652 more a month in total.

“Don’t just assume you can take these hikes in your stride. Work out what your repayments will look like by Christmas next year and make sure that number fits into your budget.

“A lot of people think just because rates are on the rise, it’s not a good time to renegotiate their home loan. But in many cases, that’s just not true.

“Banks still need to keep new business rolling through the door, and they’re typically doing it by offering sharper discounts to refinancers willing to switch lenders,” she said.

Lowest big four bank rates for owner-occupiers paying principal and interest

(note: interest-only and investor rates are higher)

Rate typeCBAWestpacNABANZ
1-yr fixed

3.59%

3.59%

3.59%

3.79%

2-yr fixed

4.39%

4.29%

4.59%

4.59%

3-yr fixed

4.99%

4.69%

4.99%

4.99%

4-yr fixed

5.19%

4.79%

5.39%

5.09%

5-yr fixed

5.29%

4.89%

5.49%

5.19%

Lowest variable

2.44%

2.09% for 2 yrs then 2.49%

2.44%

2.29%

Source: RateCity.com.au. Rates are for owner-occupiers paying principal and interest. Some LVR requirements apply.

Lowest home loan rates on RateCity.com.au

Rate typeLenderAdvertised rate
1-yr fixedUnity Bank (first home buyers only)

2.49%

2-yr fixedOrange Credit Union

3.19%

3-yr fixedBankWAW

3.55%

4-yr fixedbcu

4.19%

5-yr fixedbcu

4.39%

Lowest variableReduce Home Loans

1.94%

Source: RateCity.com.au. Rates are for owner-occupiers paying principal and interest. Some LVR requirements apply. Postcode restrictions may apply.

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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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