Home Finance Mortgage payments will rise in anticipation of the RBA’s interest rate decision.

Mortgage payments will rise in anticipation of the RBA’s interest rate decision.

by Jasbinder Singh
Mortgage payments will rise in anticipation of the RBA's interest rate decision.

Since the Reserve Bank of Australia is now deciding whether to raise interest rates to battle rising prices, there are concerns that the dramatic increase in inflation on Wednesday may affect mortgage repayments.

Following the revelation that the consumer price index (CPI) has grown by 7.3% over the previous year, some experts are speculating that interest rates may be increased by at least 0.5% by year’s end and twice more before 2023.

The RBA is expected to increase the cash rate by 25 basis points at its board meetings in November and December, bringing the rate to 3.10 percent, according to the Commonwealth Bank (CBA).

mortgage payments

There is no getting around the fact that Australia’s inflation is extremely high right now, as it is in many other parts of the world, and we anticipate the RBA will respond by raising the cash rate once more.

In fact, we predicted that the RBA would increase rates by another one or two-quarter points before pausing for a while.

According to Canstar, a 0.25 percent increase in the cash rate in November will result in monthly mortgage payments for a $500,000 home loan going up by $809 from April to November.

If mortgage payments for a $1 million home increase by 0.25 percent or by 0.5%, they will increase by more than $1619 and $1778 respectively.

Sean Langcake, head of macroeconomic forecasting at BIS Oxford Economics, indicated that the RBA will keep raising the cash rate as long as inflation remains “uncomfortably high.” However, he ruled out increases above 0.5% increase.

We continue to anticipate a further tightening of 50 basis points before the RBA takes a break to assess the state of the economy, according to Mr. Langcake.

“The inflation print for this period is really robust.

However, it is generally in line with the RBA’s projections, so it won’t have much of an impact on their outlook.

mortgage payments

Mortgage holders may have to deal with even larger repayments in the coming months as a result of inflation driving up the price of necessities.

The cost of products increased by more than three-quarters of September’s 1.8% increase in inflation, with food prices alone jumping by 3.2% over the last three months and 9.0% over the previous year.

In the last year, the cost of fruits and vegetables has increased by 16.2%, the cost of dairy products by 12.1%  and expenses are likely to climb as the effects of flooding become more pronounced.

mortgage payments

According to Effie Zahos, a financial expert with Canstar, costs are rising for homes, and the average worker needs a $6637 raise this year just to stay up with inflation.

Since inflation doesn’t appear to be slowing down, budgets will be put under even more strain, according to Ms. Zahos.

Savings in the home and reserve funds for emergencies are probably going to suffer. The government predicts that in the June quarter of 2024, household savings will decline from high levels to 3.25 percent. The storm that households must weather will come in the next 12 to 18 months.

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