How a rate rise could affect you
So how much would a rate rise lift your monthly repayments and the interest you pay over the life of your loan by? Let’s do the maths using the a hypothetical variable interest rate of 4.00%.
Scenario 1 – $300,000 home loan over 25 years
| Rate rise | Interest rate | Monthly repayments | Interest paid over 25 years |
|---|---|---|---|
| Hypothetical variable interest rate | 4.00% | $1,584 | $175,053 |
| 0.25% | 4.25% | $1,625 | $187,564 |
| 0.50% | 4.50% | $1,667 | $200,249 |
| 0.75% | 4.75% | $1,710 | $213,106 |
Scenario 2 – $500,000 home loan over 25 years
| Rate rise | Interest rate | Monthly repayments | Interest paid over 25 years |
|---|---|---|---|
| Hypothetical variable interest rate | 4.00% | $2,639 | $291,755 |
| 0.25% | 4.25% | $2,709 | $312,607 |
| 0.50% | 4.50% | $2,779 | $333,749 |
| 0.75% | 4.75% | $2,851 | $355,176 |
Scenario 3 – $700,000 home loan over 25 years
| Rate rise | Interest rate | Monthly repayments | Interest paid over 25 years |
|---|---|---|---|
| Hypothetical variable interest rate | 4.00% | $3,695 | $408,457 |
| 0.25% | 4.25% | $3,792 | $437,650 |
| 0.50% | 4.50% | $3,891 | $467,248 |
| 0.75% | 4.75% | $3,991 | $497,246 |
The tables above are a quick way of seeing the huge difference a rate rise of 0.25%, 0.50% and 0.75% could make to your ongoing repayments and the interest you pay over the life of the loan.
Just take the $700,000 loan scenario for example. If you were signed up with a 4.00% rate loan and your interest rate climbed by 0.75% you would be out of pocket by an extra $296 each month.
If you want a more exact indication of how a rate change could affect you, punch in your digits into our Home Loan Rate Change Calculator.
Switching to a better home loan deal
There are two options available to you if you are worried your lender will lift its variables rates:
1. Hope for the best and if they do lift rates budget for higher repayments
2. Vote with your feet and refinance to a more competitive deal
Back to our $700,000 scenario, if you were thrifty and decided to choose the latter option of refinancing, and switched from a 4.00% interest rate to a deal like Click Loan’s The Online Home Loan* (Principal & Interest, Owner Occupier) with a 3.64% variable interest rate, you would save $138 a month and $41,314 in interest over the life of the loan.
Now also might be a good time to consider locking in your interest rate by switching to a home loan with a fixed interest rate, as your repayments would remain the same over the fixed period and you would be protected against any rate rises. But keep in mind, fixed rate loans generally don’t come with flexible features like an offset account.
Source: Mozo
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