How a rate rise could affect you

By Rebeccah Elley ·

It may have been over seven years since the RBA last moved the official cash rate upwards, but that doesn't mean Australia's historically low rates will last forever. In fact, the RBA recently publicised its desire to break the streak of rate holds by forecasting a rate lift sometime in the future. 

When that rate raise will actually occur is anyone's guess at present, but what is certain is that when the official cash rate does lift, banks and lenders across Australia won't be far behind. 

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So how much would a rate rise lift your monthly repayments and the interest you pay over the life of your loan by? Let’s do the maths using the a hypothetical variable interest rate of 4.00%.

Scenario 1 - $300,000 home loan over 25 years

Rate rise Interest rate Monthly repayments Interest paid over 25 years
Hypothetical variable interest rate 4.00% $1,584 $175,053
0.25% 4.25% $1,625 $187,564
0.50% 4.50% $1,667 $200,249
0.75% 4.75% $1,710 $213,106

Scenario 2 - $500,000 home loan over 25 years 

Rate rise Interest rate Monthly repayments Interest paid over 25 years
Hypothetical variable interest rate 4.00% $2,639 $291,755
0.25% 4.25% $2,709 $312,607
0.50% 4.50% $2,779 $333,749 
0.75% 4.75% $2,851 $355,176

Scenario 3 - $700,000 home loan over 25 years

Rate rise Interest rate Monthly repayments Interest paid over 25 years
Hypothetical variable interest rate 4.00% $3,695 $408,457
0.25% 4.25% $3,792 $437,650
0.50% 4.50% $3,891 $467,248
0.75% 4.75% $3,991 $497,246

The tables above are a quick way of seeing the huge difference a rate rise of 0.25%, 0.50% and 0.75% could make to your ongoing repayments and the interest you pay over the life of the loan.

Just take the $700,000 loan scenario for example. If you were signed up with a 4.00% rate loan and your interest rate climbed by 0.75% you would be out of pocket by an extra $296 each month.

If you want a more exact indication of how a rate change could affect you, punch in your digits into our Home Loan Rate Change Calculator.

Switching to a better home loan deal

There are two options available to you if you are worried your lender will lift its variables rates:

1. Hope for the best and if they do lift rates budget for higher repayments
2. Vote with your feet and refinance to a more competitive deal

Back to our $700,000 scenario, if you were thrifty and decided to choose the latter option of refinancing, and switched from a 4.00% interest rate to a deal like Click Loan’s The Online Home Loan* (Principal & Interest, Owner Occupier) with a 3.64% variable interest rate, you would save $138 a month and $41,314 in interest over the life of the loan.

Now also might be a good time to consider locking in your interest rate by switching to a home loan with a fixed interest rate, as your repayments would remain the same over the fixed period and you would be protected against any rate rises. But keep in mind, fixed rate loans generally don’t come with flexible features like an offset account.

To compare some of the top home loan offers available in the market, you can visit our home loan comparison hub here.

*Rates accurate as of May 10, 2018. 

*WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

**Initial monthly repayment figures are estimates only, based on the advertised rate, loan amount and term entered. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

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