Highlights
- The RBA increased the cash rate by 25 basis points from 0.10 per cent to 0.35 per cent
- A lot of families saw an increase in their household savings for the last two years of the pandemic.
- Opting to shift to a fixed interest rate over a variable interest rate will depend on what's suitable for you.
'May PERAan' is SBS Filipino's podcast series which features financial experts seeking to answer the most common questions about money and finances.
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Anong magiging epekto ng pagtaas ng interest rate sa iyong mga bayarin?
SBS Filipino
26/04/202211:48
"I'm sure that you're thinking 'Will my salary be enough for my loan with the increasing interest rates?'
"Here in Australia, we're still lucky when it comes to economics. Unemployment is at 3.8% and there is a push for a wage hike," finance broker Maria Papa shares.
While a push for wage hike could address the price increase of goods and services due to inflation and increasing mortgages, Maria says that it's always wise to prepare for the inevitable change in cash rates.
Cash rate increase
is a term used in Australia and New Zealand banking. It is a reflection of the market interest rate on unsecured overnight loans between banks.
A cash rate target is the Reserve Bank of Australia's (RBA) primary way of controlling inflation.
"Every month, those in the RBA meet and decide if cash rates will be increased or lowered."
How will cash rate increase affect your mortgage
"For example, your loan is $500,000 and interest rate is around 2.5% Your repayment per month would be around $1,976. When the RBA increases the cash rate, all banks will increase interest rates automatically.
"They won't necessarily follow the amount increased by the RBA, even if it's by 0.15% only. It's possible that a bank will increase by 0.25%.
"If interest rates are at 2.5% now, it'll increase to 2.75%. Mortgage repayments will increase from $1,976 to $2,041 every month."
Economists project that cash rates will increase by 0.50% by the end of the calendar year.
"If interest rates were to rise to 3%, then repayment goes up to $2,108. That's $132 difference a month.
Preparing for an increase
Maria shares that despite the increase, fortunately a lot of families saw an increase in their household savings for the last two years of the pandemic.
"Many have more savings in their offset accounts.
"Interest rates will go up gradually, so prepare by scrimping and saving a bit more than usual.
"Also remember that this increase in interest rates affects all loans - personal loans, car loans, credit cards; so start looking at so that you have peace of mind.
Maria also suggests going to your bank and reviewing your home loan.
"I have a client who asked for a rate discount from the bank and the rate dropped from 3 to 2.5%. That's home loans increase without you noiticing sometimes, so make sure to be proactive about talking with your bank."
Fixed rates versue variable rates
Opting to shift to a fixed interest rate over a variable interest rate will depend on what's suitable for you.
"With fixed rates, you have peace of mind that your repayments will be the same for the next 2, 3 years; while variable rates will increase.
"However, variable rates right now are still lower than fixed rates. Also, you can make additional repayments with variable rates if you have extra money.
"You have to weigh the two. It's still best to speak with your bank or mortgage broker about these options."
Disclaimer: The information in this article serves only as a guide. For additional information regarding your particular issue or situation, consult with legal, financial and/or tax experts.
