Interest Rates.

It’s probably the most common word duo in the finance world at the moment. 

So much so, that you’re probably thinking, ‘Oh no, not another article about rate hikes – the world is going crazy.’ We get it – things can feel pretty scary.

With the cost of living soaring, this can make our finances feel even tighter, particularly with growing mortgage and loan repayments. As scary as it may seem, these fiscal adjustments are simply being set in place to correct the economy as inflation and spending continue to rise – at the end of the day, it’s about bringing a balance back into Australia’s financial situation. As Philip Lowe, the Governor of the Reserve Bank of Australia (RBA) highlighted, it is about removing the economy’s “emergency settings”, allowing the country to get back on track, whilst mitigating inflation.

Back in 2020, when COVID first struck, and the world went into a state of emergency, cash rates dropped to record lows, not just in Australia, but across the world. In November of 2020, the RBA dropped the cash rate to 0.1%, far lower than 1.5%, where it had been sitting for the majority of 2019. Ultimately, this was done to help support people in borrowing money, with the overall goal of keeping the macroeconomy from plummeting into a huge meltdown whilst helping to allow an increase in government borrowing and spending. So now, as we try to move out of these strange economic times, the RBA has increased its cash rates for each of the last three months, back up to 1.35% – which is still lower than our pre-COVID levels. In mentioning this, there’s one big question that begs an answer.

How high will rates go in 2022?

So, we’ve established that these changes in fiscal policy are happening to help out the economy and cool off rising inflation and living expenses. But, at the same time, it means that any repayments that we may have, are becoming more expensive with increases in interest rates.

Due to the necessity to continue to quell inflation, stemming from predictions of a peak in the ballpark of 7%, Philip Lowe has highlighted that cash rates will likely continue to rise as we finish off 2022. In order to meet their inflation target of 2% to 3%, The RBA predicts cash rates may reach 2.5% by the end of the year.  

So, 2.5% – what does this mean for mortgage repayments?

According to leading financial research and comparison company Canstar, compared to at the beginning of July, a loan of $500,000 would make monthly repayments around $490 more, whilst a $1.5 million mortgage would lead to a monthly repayment increase of close to $1500.

This is a time where you can rely upon strategy and understanding, rather than panic. Unfortunately, despite the increase in repayments, it’s only natural for interest rates to increase from their emergency levels, in order to quell the damages of inflation. 

So, it makes it all the more important to ensure that you have the best mortgage deal in place. Whether it be refinancing, switching to a fixed rate loan, or simply finding a new lender, at Rostron Mortgages, we’re here for you. 

Want to chat more? Give us a call on 1300 70 70 39  – we’d love to help!