Aussie homeowners could be facing thousands of dollars in extra mortgage repayments by the end of the year.
Homeowners are being told to brace themselves for interest rate rises that could see their mortgage repayments rise by thousands of dollars each year.
Many economists believe the Reserve Bank of Australia (RBA) will raise the cash rate in June, which will likely see banks push up interest rates for those on variable loans.
The RBA could move as early as May but this would fall within the federal election campaign period and AMP Capital chief economist Shane Oliver believes inflation data released at the end of this month would have to be quite high for this to happen.
“The RBA would only (move in May) if they felt an urgent need to hike rates,” Mr Oliver said.
The RBA’s cash rate is currently at 0.1 per cent and some analysts believe it may continue raising rates throughout the year, to eventually reach 1 per cent.
Canstar has crunched the numbers on a $500,000 mortgage that shows a 0.25 percentage point rate increase could cost homeowners an extra $69 a month ($828), while a 1 percentage point increase would see repayments raise by $280 a month ($3360).
However, median property prices in Sydney and Melbourne, especially for those owning a house rather than a unit, are now much higher than this.
For someone with a $1.1 million loan in Sydney, repayments would increase by $561 a month ($6732 a year) if the cash rate reached 1.25 per cent by February 2023, as forecast by the Commonwealth Bank.
In Melbourne, repayments on a $799,230 loan would increase by $400 a month ($4800 a year).
Over 30 years, this would cost Sydney homeowners $202,178 in extra repayments and $143,949 in Melbourne.
According to realestate.com.au’s PropTrack home price index for March, the median property price (including units) in Sydney has risen to $982,000, and in Melbourne, it is now $780,000.
Some have estimated that if the discount variable mortgage rate was to rise by 2.15 per cent to 5.60 per cent by June next year, then mortgage repayments would lift by 29 per cent from their current level.
For the median Sydney buyer, monthly repayments would rise by a whopping $1141 ($13,692 a year), whereas they would rise by $818 ($9816 a year) in Melbourne.
Monthly mortgage repayments on the median priced Australian home would rise from $2599 in February 2022, to $3344 – an increase of $744. This would equal $8928 a year.
While many homeowners would not want to see an interest rate rise, the RBA may have no choice due to rising inflation.
Mr Oliver said the longer interest rates stay down, the longer it would fuel spending in the economy.
“It does appear ‘mean’ but the lesson of the 1970s is that high inflation leads to lower productivity and lower living standards,” he said.
“Ultimately it’s best to keep inflation low and under control which is why the RBA is starting to focus more on that.”