With the RBA tipped to start increasing the cash rate from June, this is what homeowners and credit cardholders need to do now to get ahead.
“I don’t think anyone at the beginning of the pandemic would have predicted we’d be in a position now around the world where inflation is picking up so dramatically,” she told Senate estimates earlier in April.
If the RBA hiked the cash rate by 0.15 percentage points in June, an owner-occupier with a $2 million loan paying the average variable rate of 2.92 per cent would see their repayments climb $155 a month, according to RateCity analysis. If the cash rate then rose to 2 per cent by June 2023, as per Westpac’s scenario, that borrower would be looking at a $2035 increase a month.
Tindall says some borrowers are nearing the end of low-rate “honeymoon” period, with several hikes now in store.“The RBA is vigorously ringing the warning bell that rate hikes are coming. While governor Philip Lowe has almost certainly ruled out a rate hike in May, people should treat June as a live possibility,” she adds.New borrowers are keenly aware that more expensive payments are coming their way.
“It’s a risk that we’re willing to take, that we will be able to make those repayments, but it’s definitely an underlying concern.” There’s now a 266 basis point difference between the cheapest, quality loan on the market – at 1.85 per cent – and comparable products at the big banks.“Rather than being at the mercy of the RBA, you could potentially give yourself 10 rate cuts today,” she says.Pedersen-McKinnon said this is a “massive” mistake people make, and it can mean that even if borrowers score a cheaper deal, over the long term they may ultimately end up paying more on interest.
Pedersen-McKinnon agrees that many of the ultra-low fixed rates have disappeared, but adds that there’s no need to panic. “If you can keep those repayments the same, rather than dropping them, you will save almost $250,000 in interest and get mortgage-free eight years early,” she says. This is based on a $500,000 loan, moving from a 4.51 per cent interest rate to 1.85 per cent with“You’re used to parting with that amount of money, so even though it may be a little bit painful, it’s almost free if you want to shift your mindset to get massively ahead on your mortgage.
“While the rises have, so far, been relatively moderate, it’s a red flag some Australians are doing it tough,” Tindall says. “Australians made huge headway into credit card debt over the last two years. It’s agonising to see some of that hard work come undone.” “There are 17 cards offering rates under 10 per cent, including from big players such as CBA, Westpac and American Express. CBA, Westpac and NAB also offer ‘no interest’ credit cards. But some of these come with very small credit limits and moderate fees, particularly if you have money owing on the card,” Tindall adds.
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