In a notable departure from their long-standing policy of reducing the cash rate, the Reserve Bank of Australia (RBA) is now expected to raise it in the coming years. This development has left homeowners and prospective borrowers feeling uncertain about the potential surge in their home loan rates. So, what are the projected RBA cash rate increases?
All four major banks have presented their forecasts regarding the future trajectory of the cash rate. If you are an owner-occupier with a variable rate, there is a possibility that your home loan rate could climb as high as 6.86% by the year 2023.
Big four bank’s cash rate forecasts
- CBA: Peak of 3.85% by May 2023, then dropping to 2.60% by August 2024
- Westpac: Peak of 3.85% in May 2023, then dropping to 2.10% by May 2025
- NAB: Peak of 3.85% in May 2023, then dropping again in 2024
- ANZ: Peak of 4.10% by August 2023, then dropping to 3.85% by November 2024
Please note that the following information represents current predictions, which are subject to change as the forecasts provided by the big banks may be revised. The figures mentioned here are accurate as of the time of this publication.
As of April 2022, the cash rate stood at 0.10%. However, based on the forecasts from the four major banks, it is projected that interest rates for home loans could potentially increase by as much as 400 basis points in a little over a year.
- In a recent announcement, CBA stated its lack of support for another rate hike in June, with the chances of a hike in July or August estimated at 10%. At present, ANZ is the sole institution predicting another cash rate hike in 2023. It would result in a terminal rate of 4.10% by August.
How high could your mortgage interest rate rise?
Before the initial cash rate increase, the Reserve Bank of Australia reported that the average variable home loan rate for existing owner-occupiers stood at 2.86% in April 2022. Let’s explore how average home loan interest rates might appear if the predictions from the four major banks prove to be accurate:
Average interest rates based on big four bank cash rate predictions.
| Starting Month | Average rates based on CBA forecast | Average rates based on Westpac forecast | Average rates based on NAB forecast | Average rates based on ANZ forecast |
| Apr-22 | 2.86% | 2.86% | 2.86% | 2.86% |
| May-22 | 3.11% | 3.11% | 3.11% | 3.11% |
| Jun-22 | 3.61% | 3.61% | 3.61% | 3.61% |
| Jul-22 | 4.11% | 4.11% | 4.11% | 4.11% |
| Aug-22 | 4.61% | 4.61% | 4.61% | 4.61% |
| Sep-22 | 5.11% | 5.11% | 5.11% | 5.11% |
| Oct-22 | 5.36% | 5.36% | 5.36% | 5.36% |
| Nov-22 | 5.61% | 5.61% | 5.61% | 5.61% |
| Dec-22 | 5.86% | 5.86% | 5.86% | 5.86% |
| Feb-23 | 6.11% | 6.11% | 6.11% | 6.11% |
| Mar-23 | 6.36% | 6.36% | 6.36% | 6.36% |
| Apr-23 | – | – | – | – |
| May-23 | 6.61% | 6.61% | 6.61% | 6.61% |
| Aug-23 | – | – | – | 6.86% |
| Nov-23 | 6.36% | – | – | – |
| Dec-23 | 6.11% | – | – | – |
| Feb-24 | 5.86% | 6.36% | – | – |
| April-24 | – | – | 6.36% | – |
| May-24 | 5.61% | 6.11% | – | – |
| Aug-24 | 5.36% | 5.86% | – | – |
| Nov-24 | – | 5.61% | – | 6.61% |
| Feb-25 | – | 5.36% | – | – |
| May-25 | – | 5.11% | – | – |
| CASH RATE PEAK | 3.85% | 3.85% | 3.85% | 4.10% |
Source: Big bank rate hike forecasts as of 26/05/2023, RateCity.com.au.
If you currently have a variable rate home loan and your lender chooses to fully implement these rate hikes, you may experience a notable increase in your home loan repayments. Additionally, if you are still under a fixed rate home loan from the period of low rates, it is likely that when your loan term concludes, you will be transitioned to a substantially higher interest rate.
How high could your mortgage repayments rise?
RateCity has conducted an analysis. It is to determine the potential impact of these rate hikes on a $500,000 home loan with a 25-year term. Assume that your lender implements each cash rate hike in full as predicted by ANZ. Also consider that you currently have a variable rate loan. I estimate that your monthly repayments could increase by approximately $1,154 in 2023 compared to April 2022.
How much more you may pay on your home loan in 2023.
| Home loan | Monthly repayments |
| Average rate in April 2022 – 2.86% | $2,335 |
| Forecast average rate in 2023 – 6.86% | $3,489 |
| Difference | $1,154 |
Source: RBA average owner-occupier variable rate for existing customers, April 2022. RateCity.com.au.
Homeowners may face a considerable challenge in accommodating this increased amount within their household budgets. Which is roughly equivalent to the cost of two utility bills or a weekend getaway. This is how homeowners can manage the higher repayments. Consider taking proactive measures to create some financial flexibility within their budget.
Another option worth considering is:
- Making additional repayments at present to reduce your loan principal (if your lender permits extra repayments without incurring penalties).
- Depositing funds into an offset account or utilizing a redraw facility to minimize your interest expenses.
- Exploring the possibility of refinancing to a lender offering a lower interest rate. Provided it aligns with your financial requirements and budgetary constraints.
