RBA holds steady, but fixed-rate borrowers face concerning 63% repayment rise

The Reserve Bank of Australia (RBA) held the cash rate steady for just the second time in more than a year, in a possible sign that the era of precipitous rate rises may finally be slowing down for Aussie borrowers.

Today’s decision leaves the cash rate steady at its current level of 4.10%.

For the past year, the RBA has hiked rates aggressively at almost every monthly meeting, with its justification being an attempt to get the nation’s soaring inflation rate under control.

The most recent figures show that inflation has eased, from a 7.3% annual rise in December to a level of 5.6% in May, suggesting that inflation may have peaked for now and the rate of price growth may be on the decline.

While this is still well above the RBA’s target inflation level of 2-3% annually, today’s cash rate pause indicates the central bank is giving Australian home loan borrowers a small amount of breathing room.

Even with today’s pause, however, the outlook for Aussies coming off fixed rate mortgages this year is a concerning one.

Borrowers falling off mortgage cliff face up to 63% increase in repayments

New research from Canstar highlights the precarious position that could soon face many Aussie home loan borrowers, with figures showing that those coming off fixed-rate mortgages in 2023 could see their repayments rise by 63% overnight.

According to RBA estimates, $350 billion worth of fixed rate mortgages – roughly half of all fixed-rate mortgages in Australia – are set to expire this year, which will see borrowers switched to much higher variable rates.

Canstar research found that borrowers who took out a two-year fixed rate loan in 2021 at a near-rock bottom level of 2.21% could find themselves on a rate of 6.57% (based on the current average variable rate) when their fixed loan expires.

This would see monthly repayments on a $500,000 loan increase by $1,200 or 63% to $3,101 per month – a worrying figure for anyone currently paying off a home loan.

Borrowers set to take an “unprecedented hit” to home loan repayments

“Fixed rate borrowers of two or three years ago are facing an unprecedented hit to their finances with their interest rate possibly trebling overnight when the fixed period comes to an end and they fall off the mortgage cliff,” Canstar finance expert Steve Mickenbecker says.

“Fixed rate borrowers have not had the past year to acclimatise to higher interest rates. They have avoided the pain of adjusting their budget for higher loan repayments but will be on the receiving end of the Reserve Bank’s 12 cash increases over the past year all in one huge hit.”

Mickenbecker says that the position of borrowers is likely to deteriorate even further if the Reserve Bank continues to lift the cash rate over coming months, which several of Australia’s major banks have predicted.

How can you save on your home loan rate?

If your fixed rate home loan is about to come to an end, or even if you think you could be getting a better deal than what you’re currently paying, you can compare home loans with Canstar to see what your options might be, and if there’s a more favourable deal out there for you.

If you are thinking about refinancing your current home loan to a new lender and want to know more about the process and how it works, Canstar has a list of seven mistakes to avoid when refinancing, so you can be better prepared to strike a new deal.

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