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Australian Homeowners Warned Mortgage Repayments Could Rise By Thousands Per Year

Homeowners are being warned that the Reserve Bank of Australia could have the intention to raise the cash rate in June, resulting in variable loan interest rate increases.

Many economists believe the Reserve Bank of Australia (RBA) will raise the cash rate in June, which will see banks push up interest rates for those on variable loans.

The RBA could move as early as May, but this would fall within the federal election campaign period, and AMP Capital chief economist Shane Oliver believes inflation data released at the end of this month would have to be quite high for this to happen.

“The RBA would only (move in May) if they felt an urgent need to hike rates,” Mr Oliver said.

The RBA’s cash rate is currently at 0.1 per cent (which, if you’ve been watching the news this week, you’ll now be familiar with this statistic!) 

Some analysts believe it may continue raising rates throughout the year, to reach 1 per cent eventually.

Canstar crunched the numbers on a $500,000 mortgage showing a 0.25 percentage point increase could cost homeowners $69 a month extra, $828 per year, while a 1 percentage point increase would see repayments rise by $280 a month $3360 per year.

For someone with a $1.1 million loan in Sydney, repayments would increase by $561 a month ($6732 a year) if the cash rate reached 1.25 per cent by February 2023, as forecast by the Commonwealth Bank.

Over 30 years, this would cost Sydney homeowners $202,178 in extra repayments and $143,949 in Melbourne.

While many homeowners would not want to see an interest rate rise, the RBA may have no choice due to rising inflation.

Mr Oliver said the longer interest rates stay down, the longer it would fuel spending in the economy.