👉 Background: The Reserve Bank of Australia (or RBA for short) meet on the first Tuesday of every month (except January). They decide if the cash rate will go up, go down or remain the same.

👉 What happened: For 10 years between November 2011 - April 2022, the cash rate remained the same, or declined each month. But now, the RBA has raised the cash rate by 0.25% to 2.60%. This is the 6th rate rises in a row and the fastest rate-rise since 1994. Eeeep.

👉 What else: The RBA reckon that this 0.25% rate rise is just “business as usual”. But some experts reckon these rate causes could cause a 20% drop in house prices. And this could leave some homeowners with negative equity loans.

What's the key learning?

💡A negative equity loan is when the value of your property falls below the balance of your mortgage. Currently only 0.1% of Australians are in this situation.. but this could jump to over 2.5% of Aussie homeowners as rates continue to rise and house prices continue to fall.

💡 Here's how it works: Let’s say you buy a property for $1,000,000 and you’ve borrowed $800,000 from a lender. If the house value drops below $800,000, then you’re in a negative equity loan. It means your mortgage is worth more than the house itself.

💡Negative equity loans are more likely to affect recent borrowers because they have had less time to pay down their mortgage and less time for their property to grow in value.

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