Homeowners with a mortgage are braced for the fourth interest rate hike of the year this afternoon. If it comes to pass, it will put borrowers in a place millions of them have never been.
The three rate hikes already this year reversed cuts handed down by the RBA in 2025. Another one will take rates to their highest level in 15 years.
And this one will hit different.
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A majority of borrowers did not actually reduce their mortgage repayments last year when the their home loan interest rate came down. Because most banks (but not Westpac or Macquarie) don’t automatically drop your payment after a rate reduction, but the difference goes to paying down the principal of the loan, usually slowly accumulating in a redraw facility. But for the first time in this latest hiking cycle, today’s hike will actually increase the amount those borrowers have to fork out on their monthly mortgage repayment.
In February this year, the Commonwealth Bank told Yahoo Finance that only 11 per cent of customers reduced their direct debit repayments following the third rate cut in August last year, while ANZ said 14 per cent of customers had opted to reduce their repayments since the rate cuts began and NAB similarly noted 80 per cent of customers had kept their repayments the same after the rate hikes.
But when the banks pass on the next one, it will be felt in the form of a higher repayment.
LIVE BLOG: RBA interest rate decision
It’s something independent housing economist Cameron Kusher noted ahead of the second day of the RBA’s meeting on Tuesday.
“After the cash rate was reduced three times in 2025 not everyone would have necessarily reduced their mortgage repayments and there were still some people that locked in ultra-low fixed rates during the pandemic,” he wrote.
“The three rate hikes so far this year have returned the cash rate to the high recorded coming out of the pandemic. Any further rate increases from here, including the one I expect tomorrow (Tuesday), will impact on all almost every mortgage holder.
“I believe the impact of this interest rate increase and any future increases will impact on mortgage holders much more than previous ones.”
The silver lining, for borrowers at least, is that the impact on the economy could pave the way for cuts sooner than currently expected by the market.
“It will probably have a much broader impact on the economy and I believe it will necessitate future rate cuts sooner than what the market is currently pricing which is no rate cuts for the next 18 months,” Kusher said.
Homeowners have twice the amount of debt compared to when rates were this high last time
If the RBA hands down an increase this afternoon, it would likely take the official cash rate to 4.6 per cent.
The last time rates were that high – in October 2011 – Aussie households had less than half the amount of nominal mortgage debt.
Since that time, home loan debt has surged 138 per cent, rising from a little over $1 trillion to $2.51 trillion today, according to APRA monthly banking statistics highlighted this week by Canstar.
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