A known economist, EQ Economics managing director Warren Hogan, has said that unless this economy goes into recession the RBA are going need to take the cash rate up to at least five per cent.
“Next week they’ve got an opportunity to send a message to the whole community, including the governments of Australia, that this is a real issue for this country and raise the rate by 40 basis points taking the cash rate to an even 4.5 per cent and making a big inroad in getting that cash rate toward five per cent.”
So as a finance broker I’ve calculated to work this out using the standard home loan repayment formula: and if that scenario happens, repayments on an 800k mortgage over 30 years.
If you’re a self employed borrower on a low doc mortgage, you’re currently around 6.89% on $800k over 30 years (~$5,260/month).
If the cash rate rises toward 5%, your actual loan rate typically ends up somewhere around 7.9%–8.2% (depending on lender margins). I’ll show you both so you can see the range.
Scenario 1: Rate rises to 7.89%
* Monthly repayment: ? $5,800
* Increase from today: ~+$540/month
* Weekly impact: ~+$125/week
Scenario 2: Rate rises to 8.19%
* Monthly repayment: ? $6,050
* Increase from today: ~+$780/month
* Weekly impact: ~+$180/week
What this actually means (this is the part most people underestimate)
If rates push toward that 5% cash rate level:
* You’re likely looking at $5,800 – $6,050/month repayments
* That’s $6,000–$9,000 extra per year out of your cashflow
* And that’s without factoring in cost of living increases happening at the same time
The bigger issue (not just the number)
At this level:
* It’s not just “can I afford it today”
* It becomes how long can I comfortably sustain it
* And whether your loan is structured to handle pressure (this is where most people are going to feel financial hardship if they haven’t prepared or pressure tested)
We have self employed home owners asking how much buffer do we actually need so we’re not reacting when rates move.
If you want clarity and a plan we’re available 7 days a week to discuss options for peace of mind. Contact ThriveBroking now!