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· Posted on
February 21, 2024

Interest rates June 2022: How does the cash rate impact my home loan?

The Reserve Bank is at it again, raising the cash rate by 0.50% to 0.85%. So what's the story for your home loan?

What's the key learning?

  • The RBA has just raised the official cash rate for the second time in two months. It’s now up 0.50% to 0.85%
  • Generally when the RBA increases the official cash rate, banks and lenders increase their home loan rates
  • If you have a variable loan, or a variable portion to your loan, then that’s what’ll change
  • That means between the May and June rate hike, Aussies with a variable loan of $500,000 will pay an extra $185 per month! 

Damn, Reserve Bank! Back at it again with the cash rate hike. Yup, the Reserve Bank of Australia (RBA) has just raised the official cash rate for the second time in two months. It’s now up 0.5% to 0.75%.

Oops! The RBA rn.

It’s part of the RBA’s plan to eventually get the cash rate up to 2.5%, in the hopes that it’ll steady the rising inflation rate. 

Buuut Aussies aren’t too happy about it. In fact, Canstar research shows just 15% say they have room in their budget for a cash rate increase. And just 18% say they could stretch their budget to meet the higher cost.

What’s the RBA cash rate?

Quick recap: the official cash rate is the amount of interest that banks pay when they borrow money (yep, banks - they’re just like us!). 

The RBA decides what the official cash rate is on the first Tuesday of every month (except January). Once it makes its call, banks and lenders tend to change their interest rates on savings accounts and home loans (generally, in line with the official RBA cash rate).

What happens when interest rates rise?

Put simply, if the RBA increases the cash rate, then the interest rate on your loan will likely increase. And your interest rate on your savings account should increase too (but often doesn’t).

You can read more about the cash rate here.

How does an interest rate rise impact my home loan?

Generally when the RBA increases the official cash rate, banks and lenders increase their home loan rates. If you have a fixed loan, you won’t see any immediate changes. If you have a variable loan, or a variable portion to your loan, then that’s what’ll change.

So, what does that actually look like? Take a look at this table, which shows the extra repayments on a home loan each month depending on your loan size and the rate hike. 

Source: Mozo. Based on owner occupier loans of $500,000, $750,000 and $1,000,000 over 25 years.

That means between the May and June rate hike, Aussies with a variable loan of $500,000 will pay an extra $185 per month! 

If you’re worried about your cash flow as rates rise… check this out.

All information contained in the Flux app is for education and entertainment purposes only. It is not intended as a substitute for professional financial, legal or tax advice. While we do our best to provide accurate information on the podcast, we accept no responsibility for any inaccuracies that may be communicated.

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