Another interest rates rise and how it translates into our money

by Chris Lang on May 4, 2010

Interest Rates RiseToday RBA has lifted the interest rates again, for the 6th consecutive time. I didn’t mention any of the previous rate rises on Homeiown (why bother when the mainstream media is covering it well anyway), but this time is different.

What is so different about it?

Well, firstly, this interest rates rise will push the Standard Variable Rate above the 10 years average, and this is kind of big deal. The 10 years average is 7.5% and after today’s RBA decision the new Standard Variable Rate goes up above that number. Of course all the banks are quick to pass that on.

Percentages, percentages… look all too small and insignificant, aren’t they?

How about a real life example. Take a typical 30 year housing loan of $300,000. Today, with the same loan, you would be paying $317 more a month compared to September last year.

You know what, forget September last year, and compare it to last month. From May on, assuming that interest rates are not going anywhere (which is probably unreasonable) you will be paying $51 a month more, that’s $612 a year. Which means that average first home buyer is now around $600 a year poorer.

“Today’s rate rise is tough for families and small businesses”, Federal Treasurer Wayne Swan admits, and as a consolation reminds us that the rates are still significantly lower than they were at their peak. What a joke. Let’s just hope that that we all get a pay rise to cover this extra expense – otherwise it could just wipe out that holiday we were planning off the calendar.

Ironic, isn’t it.

First we get stung by forever rising housing prices. Then, after we’ve paid whatever it takes to secure ourselves a home and got into a mortgage for the next 30 years, they say that the rise in house prices pushes inflation up and that deserves another interest rates rise. So there we are, having overpaid for the house, we now have to overpay for the mortgage as well.

And renters amongst us are in no better situation – they don’t even own an “asset” that appreciates with the housing market, but are paying higher rents because their landlords with mortgages are passing on the difference in their mortgage repayments.

What are higher interest rates doing to your family budget?

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