Australians have to be prepared for higher interest rates says the governor of the Reserve Bank, Glenn Stevens.
Financial markets are expecting as many as six rate hikes over the next year or so, starting from early in the new year. That means higher repayments not just on your mortgage, but probably on your credit card and car or personal loans as well. The only upside is that rates are also starting to go up on savings as well.
Stevens told a parliamentary committee that official interest rates could be expected to ‘normalise’ over the next year or so at around five per cent. The current official interest rate is 3.0 per cent. That extra two per cent in official rates would push average standard variable mortgage rates from about 5.5 per cent to about 7.5 per cent. On a $300,000, 25 year mortgage that would push repayments up from around $1848 per month to $2223 per month.
The current average advertised variable rate for a personal loan is 11.6 per cent per annum. For a $10,000 loan over five years at this rate, monthly repayments are about $220. If this rate goes up by two per cent to 13.6 per cent, monthly repayments would go up $11 to about $231. Average standard credit card rates are about 15 per cent. For a $3,000 card debt, the interest plus 1 per cent minimum monthly repayment costs about $67 per month. If this interest rate increases to 17 per cent, interest plus 1 per cent monthly repayment would be $72.
So a typical consumer with a mortgage, credit card and loan will have to find an extra $390 per month if rates head north by two per cent. That equals an extra $4680 in repayments per year.
Get your finances in order before the rates go up. Speak to one of the financial advisors at Intellichoice about debt consolidation, help with budgeting or putting a savings plan in place.
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