How interest rate rises will impact mortgage repayments in Australia

It’s almost certain interest rates will rise on Tuesday — this is how much extra you could be paying if the experts are correct.

Australians are bracing themselves for an almost-certain interest rate rise on Tuesday.

Experts believe the Reserve Bank of Australia will need to act on rising inflation, which hit 5.1 per cent over the past year to March.

AMP Capital chief economist Shane Oliver believes if Australia was not in the middle of an election campaign, there would be no debate on whether the RBA would move.

He said inflation is so high the case for higher rates is overwhelming.

“To not raise rates, would likely see the RBA accused of being interfered with politically,” he told

The RBA is expected to announce its decision on the cash rate on Tuesday, around 2.30pm.

Here’s what to expect.

How much are they likely to rise by?

There is a general consensus the RBA will at least increase rates by the amount of the last rate cut, which was 0.15 percentage points.

However, it may consider this amount too small to make much of a difference in the economy.

The RBA could instead chose to lift rates by 0.25 percentage points, which is an increment it has generally used in the past.

AMP has gone further, predicting rates could rise even higher – by 0.4 percentage points.

It’s also possible the RBA keeps the cut small for now and then waits until after the election campaign to raise rates more quickly.

Mr Oliver believes rates could be 1.5 per cent higher by the end of the year, and 2 per cent higher by mid next year.

When would people have to start paying?

While the RBA sets the cash rate, people’s mortgages will only become more expensive once individual banks pass the increase on to their customers.

Generally the banks announce what they intend to do soon after the RBA has released its decision. Mr Oliver thinks banks will pass on the full amount of any rate hike.

“Whatever the RBA does, the bank’s standard variable amounts will likely go up by the same amount,” Mr Oliver said.

“I think within a few days most customers will be getting a letter from their bank about a rate rise.”

What’s the increase to my mortgage repayments?

The RBA’s cash rate is currently 0.1 per cent, but the average standard rate among banks is at 5.1 per cent.

Mr Oliver said most customers with variable loans would only be paying interest of around 3.5 per cent.

If rates were to rise, repayments on a principal and interest loan of $500,000 with 25 years remaining, would increase by $41 a month (to $2544 a month) if there was a rate rise of 0.15 percentage points, from 3.5 per cent to 3.65 per cent, according to Mozo’s online calculator.

They would increase by $68 a month if there was a 0.25 percentage point increase, $136 with a 0.5 percentage point increase, and $567 if there was a 2.0 increase.

You can check the impact on your mortgage in the table below.


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