With March 2023 came the tenth cash rate increase from the Reserve Bank of Australia (RBA) since May the previous year. This sharp increase from 0.1% to 3.36% in just 10 months has resulted in significant impacts on Australian borrowers.

What effect do RBA cash rate increases have on home loan repayments?

While some borrowers have been shielded from the rises with fixed rates, many needed to adjust to increasing payments on their loans.

So, what is the impact of a rate rise?

A twenty-five-basis point (0.25%) rate rise will generally result in an increase of $16 per month for every $100,000 of loan on a 30-year term. So, if your loan is $750,000, a rate increase of 0.25% would result in the following: 7.5 x $16 = $120 per month on top of your current repayments in February.

Working on figures relating to a total increase May22 to February23, your $500 loan had an $80 monthly increase in February taking the total increase to $960 over the period, and your $1,000,000 loan had a $160 monthly increase in February taking the total increase to $1920 over the period.

The team at Pivotal Financial can help with forecasting where your repayments may land, along with several loan structuring tips and tricks that can help you adjust to the new economic environment, from linking off-sets, re-pricing existing loans, and reviewing your lending against the rest of the market.

What effect do RBA cash rate increases have on borrowing capacity?

With interest rates on the rise, borrowing capacity is a hot topic!

The higher the rates go, the less people can borrow – but there are options for people outside of their current lender.

When the Pivotal Financial team looks at how much a client can borrow, they are calculating income, living expenses, and current commitments, all of which can have a degree of variability with a lender.

When you speak to a Pivotal Financial broker, you have a finance specialist who can access 30-plus lenders, and the results can be very different from one lender to another.

Here’s a scenario using the same information around income, expenses, and commitments.

Two adults, two children. A joint income of $150k and a $10k credit card

Five different borrowing capacity outcomes from lenders: $851,740; $832,043; $778,392; $696,879; or $679,108.

See the discrepancy between lenders?

Just remember if one lender says no, it doesn’t mean that they all will!

Contact the Pivotal Financial team. Phone: 07 3007 9088 Email: info@pivotalfin.com.au. Web site: https://www.pivotalfin.com.au/