Rate rise stretches budget
GRACEMERE’S Ramon and Karina Johns fear any more interest rate hikes could force them to sell their $370,000 home.
The couple said that yesterday’s latest hike, after the Reserve Bank of Australia raised the rate by 25 basis points, would put them to stretching point.
With more than 50% of Ramon’s income going on the home-loan repayment, there isn’t much cash as the family heads to Christmas. Ramon’s the breadwinner while Karina stays at home to look after the family’s three children.
“We are stocking up the cupboard with baked beans and two-minute noodles,” the couple said yesterday after they did their grocery shopping at City Centre Plaza.
And the shopping trolley was filled with home-brand products.
“If rates continue to go up and I don’t manage to get a better paying job in the next six months, we won’t have a choice,” said Ramon, who brings home about $2800 in a good month from his casual role at a CQ mine camp site.
Ramon said they could afford the house when he had a good paying job, but he lost it during the financial downturn.
The family live pay cheque to pay cheque and most weeks they can’t afford to buy meat and fresh vegetables.
David French, managing director of Capricorn Investment Partners, said although The Reserve Bank bumped up interest rates by a further 25 basis points to 3.5% yesterday, the rates were running at an unusually low level due to the economic downturn.
The increase, the second in as many months, will lift monthly repayments on an average $300,000 home load by about $46, assuming retail banks meet the central bank’s move.
Mr French said if official rates continued to climb to 5% over the next year or so, the interest on an average home loan would go up a further $4500 a year.
“This rise would hurt the average household,” he said.
The Bully’s regular business columnist said despite the rate rises, there was a common trend with borrowers fixing their rates.
“Borrowers need to be careful and weigh up the benefits of fixing rates and these benefits depend on the individual circumstances and the price of setting a fixed rate compared with the current variable rate.”
INTEREST RATE HIKES
The extra monthly costs you’ll pay on your home loan after yesterday’s 25 basis point rate rise assuming retail banks match the Reserve Bank’s rise:
• $200,000 … $1,325.53 ($15.40)
- $250,000 … $1,656.91 ($38.51)
- $300,000 … $1,988.29 ($46.21)
- $350,000 … $2,319.67 ($53.91)
- $400,000 … $2,651.05 ($61.61)
- $450,000 … $2,982.44 ($69.31)
- $500,000 … $3,313.82 ($77.01)
Note: The figure in brackets is the monthly increase.
This rise would hurt the average household