The Reserve Bank has just announced after its June meeting that the official cash rate is 0.85%. This is the second time the RBA raised the official cash rate ever since it dropped to record lows of 0.1% in November 2020. The last rate hike was in May when the RBA lifted the cash rate by 25 basis points to 0.35%. 

 This is still an effort to curb the soaring inflation before it gets out of hand. Prior to this move, economists bet on around 25 to 40 basis points in increase. This why it came as a surprise when the RBA announced a 50-basis-point rate hike. 

What does this mean to consumers, particularly those with mortgages? According to researchers at CoreLogic, the combined 75-point increase since May means a person with a $500,000 loan will have to pay an additional $200 every month starting now. 

Just considering this month’s 50-basis point hike, having a $500,000 loan means an additional $133, while it’s an additional $265 for those with $1,000,000 in loans. 

This will likely affect those with variable rate loans. Most banks have historically passed the rate rise to consumers immediately after imposition. 

The prices of basic commodities have kept rising over the past months. The added monthly mortgage costs will surely make a dent in the budget of Australian households. 

2022’s first quarter saw an inflation rate of 5.1% based on the consumer price index. Fuel has also become 35% more expensive in that quarter. The target of the RBA is somewhere between a 2% and 3% inflation rate. The rise in interest rates aims to achieve an economic cool down by making people slam the brakes on spending. 

Although the last government left the unemployment rate pretty low,. However, the current government will have to deal with the record-high inflation nonetheless. 

The RBA has already said in May that the official cash rate will likely keep on rising. If you haven’t already, contact your broker to plan your next move regarding your mortgage.