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800,000 Australian households warned of new mortgage shock. Here’s how much it could cost you


The Reserve Bank of Australia predicts 800,000 Australian households could be in for a rude awakening when their fixed rate expires this year.

Speaking at Senate Estimates this week, the head of the RBA’s economic analysis department Marion Kohler said “back of the envelope” calculations bore a grim outlook for hundreds of thousands of households.

WATCH THE VIDEO ABOVE: Aussie homeowners predicted to be hit with another four rate rises.

The RBA has raised the cash rate from the pandemic record-low of 0.1 per cent to 3.1 per cent since last May.

The board is due to meet again on Tuesday, where economists largely predict another 0.25 per cent hike.

Some Australians could be forced to find more than $1000 extra dollars in their monthly budgets. Here’s why. Credit: Getty Images

Borrowers who fixed their mortgages for two years in 2021 are most at risk when that expires sometime this year.

Kohler said “somewhere in the high 800,000” was how many mortgages faced that reality.

“That’s not 800,000 households necessarily, that’s people who have more than one loan facility,” she told the Senate hearing.

“Around one third of the housing credit is fixed rate and we think half of that is due to roll off in the coming year.

“This is quite a difficult question to answer.”

If the predictions of continued increases are realised, some Australian borrowers will be paying more than $1000 dollars extra per month in mortgage repayments than before the RBA’s increases began.

While other experts say that estimation is at the more dire end of the scale, they agree the RBA is very likely to increase the cash rate to 3.35 per cent next week as it tries to curb inflation.

Australia’s annual inflation rate reached a 30-year high of 7.8 per cent in the December quarter and the RBA expects it to continue to increase in the months ahead, according to its December announcement.

While inflation is expected to eventually decline this year, RateCity predicts borrowers will “almost certainly” face another cash rate hike in February, which would make it the ninth rise in as many meetings.

Commsec’s Craig James agreed, telling Sunrise the bank expects the cash rate to hit 3.35 per cent next week.

However, after that, the RBA is likely to pause to assess the economy, he said on Tuesday.

“I think Deutsche Bank are at the gloomy end of predictions,” James said.

“You’ve got to remember; we’ve had eight interest rate hikes in a row.

“We’ve gone from 0.1 of a per cent to 3.1 per cent in super quick time, we haven’t seen an aggressive reserve bank like this ever before.

“At some point in time, it’s got to slow the economy down and in our calculations, consumer spending is already starting to slow down.”

If the RBA bumps the cash rate to 3.35 per cent – a 25 basis point hike – it would take it to the highest rate since September 2012.

The change would mean the average borrower with a $500,000 loan before May last year could be paying a total of $908 more a month, according to RateCity’s analysis.

An average borrower with a $750,000 or $1 million loan, could be paying $1362 or $1816 more a month in repayments respectively compared to before May.

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‘Don’t stick your head in the sand’

The big four banks expect the RBA will hike by 25 basis points in February but when the cash rate will finally peak remains a contentious issue.

Commonwealth bank expects it to peak at 3.35 per cent next month, while ANZ, NAB and Westpac are flagging more rises may be on the horizon.

NAB predicts a peak in March at 3.6 per cent, while Westpac and ANZ say May at 3.85 per cent.

A 25 basis point rate hike could mean some borrowers are paying more than $1000 more in repayments compared to before May, when the hikes started. Credit:

RateCity research director Sally Tindall said Australia’s serious inflation problem left the RBA with little choice but to serve up another cash rate hike.

“After a break in January, the RBA is unlikely to leave the cash rate on hold for two months in a row,” she said.

“Australians are now looking down the barrel of the ninth rate hike since May of last year.”

For those with a home loan, Tindall said it was time to get their finances in order.

“Don’t stick your head in the sand. Now is the time to review your budget to make sure you can cover these higher repayments before they hit.”

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Source: 7News