Full pain on loans is yet to be felt

Millions of loan holders are yet to be slugged with higher mortgage payments, despite the recent cash rate rises by the Reserve Bank.

Australia’s biggest banks have only increased customer repayments for the past eight or nine of 11 cash rate rises, meaning that in the interim, many borrowers have been incurring rising interest costs.

In essence, even as banks increase their rates, it often takes them months to increase the minimum amount a borrower needs to pay to keep their mortgages under control. All the while, borrowers paying the minimum amount are potentially falling behind as interest mounts – and may be hundreds of dollars behind once the banks rebalance the payments.

The RBA increased the cash rate on May 2, lifting interest charged on its wholesale funding by 25 basis points.

This flowed through to Australia’s legion of mortgage holders on variable interestrate loans. But banks have lagged in increasing repayments due to the way in which banks reassess borrowers.

This means millions of borrowers face repayment increases to match the 75 basis points increase of the past three rises in their mortgage costs.

Ratecity research director Sally Tindall said the mismatch meant many homeowners who felt they had “conquered the last three rate rises have only got to number nine”.

“The average borrower is only paying up to March,” she said. “There’s a whole load of families that still haven’t paid for the ninth, 10th, or 11th rate hike.”

A Ratecity estimate suggests borrowers with a $500,000 mortgage face a further $150 to add to their repayments from the increases that are still to land. Borrowers with a $1m loan face a $301 increase to their repayments.