The latest interest rate hike will cause more Australian homeowners to suffer from mortgage stress, a new study by RateCity has claimed.
According to the study, the latest rate hike by the Reserve Bank will lift the average household’s mortgage stress by 0.50 per cent.
For the average family on a dual income with a $275,000 home loan, they will now be paying around 22.5 per cent of their income towards their home loan repayments. For a larger home loan of $500,000, the average family on a dual income will be paying around 41 per cent on repayments.
RateCity’s CEO Damian Smith said that mortgage stress occurs when 30 percent or more of a borrower’s income is spent on home loan repayments.
“Clearly there will be more Australians heading into that danger zone as we head into the upswing of the rate cycle,” Mr Smith said.
Borrowers are encouraged to make extra repayments now, not only to protect themselves from rising rates but also to potentially reduce the loan in the long term.
“Compared to the Reserve Bank rate movements, home loan interest rates have been rising faster since April 2008 and they don’t look likely to slow any time soon,” Mr Smith said.
“Even though more rate rises are expected to follow into the New Year, lenders will become more competitive with home loans in the coming months and more innovative features and campaigns will appear on the market,” he said, adding that borrowers should use this time to shop around online for the best deal.