Start looking for an extra $375 per month

Borrowers need to factor in an extra $375 per month for a $300,000 home loan as interest rates are expected to rise two per cent to 7.5 per cent in the next two years, according to financial comparison website RateCity.

RateCity chief executive Damian Smith says some Australians will be under mortgage stress as the rate rises start to take effect.

“For a $300,000 home loan with a current variable rate of 5.5 per cent per annum, a single average $900 per week income (earner) is already paying 50 per cent of their salary to repayments and a dual income is 26 per cent,” Smith notes.

“If interest rates increased by two per cent, the average family would be over the mortgage stress line with 31 per cent of their salaries going towards loan repayments.”

Australia’s major and smaller lenders have all lifted their standard variable interest rates since the Reserve Bank raised official rates to 3.25 per cent in early October, taking the benchmark standard variable rate to 6.03 per cent.

Smith says accelerating your repayments is the best way to avoid the sting of interest rate rises.

“By adding $184 each month to a $300,000 loan with a 5.5 per cent per annum interest rate, which would bring repayments to about $2026, you could save about $50,000 over the 25-year loan term and reduce the loan by over four years.”