Repayments Jump On Rate Increase

Repayments on an average mortgage are expected to increase by about $24 a month after official interest rates were lifted this morning.

The Reserve Bank increased the official interest rate by 25 basis points at 9.30am (8 May 2002).

The decision, which was widely expected, lifts the official cash rate from 4.25 per cent to 4.5 per cent.

It follows the bank's monthly board meeting yesterday.

Banks started to pass on the increase soon after the announcement.

A similar hike on mortgage rates will add almost $24 a month to repayments on a typical 25-year, $153,100 home loan.

Economists have warned home buyers could be paying almost $100 extra a month on mortgages by the end of the year if interest rates continue to rise as predicted.

Commonwealth Bank chief economist Michael Blythe said yesterday: "At this stage, we've got the peak cash rate pencilled in at 5.25 per cent by the end of 2002.

Source: http://www.news.com.au, May 8 2002

PropertyInvesting.com Comment

I suggest that this rise in interest rates signifies the turn in the real estate market and represents the beginning of the shift in psychology away from a seller's market. This will take time, but rises in interest rates will provide a better opportunity for people well placed (ie. cashed up) to profit from less sophisticated investors who over capitalised during the boom times without regard to interest rates being at 30 year lows.

Remember that big profits are made in times of crisis. Expect that while rate increases remain in the headlines for property sales to stall.

If the Michael Blythe is correct then variable home loans will be 0.75% higher than they currently are - which will have the benchmark home loan rate at about 6.81% (variable).

There are interesting times ahead!