Half a year of rising repayments: Borrowers repayments to rise by $3,227 a year

• Another 50 basis point (bp) hike by the RBA will take the cash rate target to 2.85%, an increase of 275 basis points since May
• Borrowers with the average variable rate in May 2022 (3.02%) would now be facing a 5.77% interest rate if their lender passed on all the rate increases, adding $3,227 to the yearly cost of a $400,000 loan for an owner occupier paying principal and interest.
• 15 lenders have passed on all five rate hikes in full, to owner occupier customers
• The average variable interest rate in Mozo’s database is now 4.93%, up from 3.02% in May
• Currently the best variable home loan rates in Mozo’s database is 3.34% through G&C Mutual Bank
• Borrowers could save up to $4,248 a year off their mortgage by switching to the lowest variable rate in the Mozo database (3.34%) from the average variable interest rate (4.93%)
  

Ahead of the RBA meeting next Tuesday, analysis from Mozo reveals if lenders pass on another 50 basis point to total 275 basis points increases to borrowers they will see their repayments increase by $3,227 a year on a $400,000 home loan.  

Mozo analysis reveals that 15 lenders have passed on the previous five rate increases in full. Its database is showing the average variable interest rate is now 4.93%, up 191 basis points since 1 May.

“Borrowers need to brace yet again for another rate rise in October. While there is more speculation month around how much the RBA will increase rates by, it is expected that they will increase by at least another 50 basis points before the end of the year. Whether that’s split up over two months or just one rise,” says Claire Frawley, Personal Finance Expert at Mozo

Home loan customers who secured the average variable rate in May 2022 (3.02%) would now be facing a 4.77% interest rate, if their lender passed on all the rate increases (275bp).

This would see them needing to find an additional $3,227 a year to afford the repayments on a $400,000 loan for an owner occupier paying principal and interest.

The last time the RBA made several increases in a row was between October 2009 through to November 2010. However, these sequential increases were only 25 basis points. 

“Although home loan interest rates are returning to more normal levels following the pandemic, consecutive increases are clearly hitting home with many borrowers confronted with higher monthly repayments,” Frawley says.  

Mozo’s database shows the leading variable home loan rate is 3.34% through G&C Mutual Bank.

If a borrower with a $400,000 mortgage refinanced from the average variable rate of 4.93% to the leading rate in the Mozo database 3.34%, they could save up to $4,248 over the course of a year. 

“While refinancing might seem like a massive undertaking, especially as rates are expected to continue to rise, it is a great way to soften the burden of higher interest rates and inject some extra cash into household budgets,” Frawley says.

To check to see how much your repayments might increase, visit Mozo’s rate change calculator. 

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Notes: $400,000 owner occupied home loan with monthly principal & interest repayments over 25 years and LVR of 80%. Average interest rate 4.93% accurate as of 28 September 2022