Rate Rises to Drive More Interest Paid on Average Loans | News from the region

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Mortgage holders could be forced to fork out another $800 in monthly interest payments amid rate hike forecasts from Australia’s biggest banks. Analysis of RateCity’s Big Four cash rate forecasts for Australian Community Media showed borrowers are set to be stung with hundreds of dollars in additional interest charges, once the Reserve Bank starts raising rates over the next two years. Calculations are based on the most recent average loan size in each state and territory, with the median ACT loan of $585,859 expected to incur additional interest payments between $359 and $601 per month. Across the border in New South Wales, the potential rate hike is worse, with an average mortgage in the most populous state potentially incurring additional charges of between $477 and $800. The average loan size in the ACT is also the third highest nationally after NSW and Victoria. RateCity’s research director, Sally Tindall, stressed that borrowers should build up a savings reserve and stressed that a rise in short-term rates was inevitable. “No one is going to like the idea of ​​putting their hard-earned savings back into their bank as extra interest charges,” Ms Tindall said. “Don’t sit and wait for rates to rise, build up a reserve as soon as you can by putting extra money into your offset or directly into your home loan. The lower your loan amount when the rate goes up, the more the less shock you will have.” By December 2023, Commonwealth Bank expects the RBA to inflate rates to 1.25%, while NAB and Westpac assume the cash rate will hold at 1.5%. ANZ, at the higher end of the spectrum, estimates that the cash rate should rise to 2%, which would result in higher mortgage rates offered by lenders on loans to homeowners and investors. Growing interest has been in focus following speculation from the RBA that a “plausible” rate hike could occur later in the year. Higher-than-expected levels of inflation above the RBA’s 2-3% target range led the market to believe a rally could come as early as August. Earlier RBA action was also announced after the US Federal Reserve signaled it could raise rates as early as March. However, RBA Governor Philip Lowe quashed the speculation, pointing out that US inflation was double Australia’s. READ MORE: Longer-term rate forecasts from the big four also show that the peak rate by 2024 could be between 1.75% and 3%. Ms Tindall noted that the RBA is aware of the rising levels of debt held by Australians due to the property boom which has seen values ​​rise by more than 25% during the year. “Over the next two years, the cash rate is expected to be between 1.25 and 2%, which is historically still incredibly low,” she said. “As the governor pointed out, our elevated debt levels will help keep rate hikes to a minimum, as he expects households to cut faster and deeper in response to rate hikes. than before.” According to statistics from the Australian Prudential Regulation Authority, household savings are at an all-time high, with almost $119 billion more savings accounts than a year ago. The RBA, in its quarterly monetary statement released on Friday, indicated that it expects this ratio to likely decline over the year and also support consumption. The savings are also touted to help cushion the blow of increased interest payments. Ms Tindall pointed out that a number of people would have been financially impacted by the pandemic and would likely not have a reserve of savings built up to help cover additional repayment costs. “When rates go up, some of these people might be forced to have difficult conversations with their bank,” she said. RateCity is a financial comparison site. Australia’s economic rebound from the pandemic is expected to continue through 2022, despite a potential loss of momentum due to the recent Omicron outbreak. Gross domestic product is expected to exceed 4% according to the RBA, unemployment is expected to fall to 3.75% by the end of the year.

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Garland K. Long