Home-owners face new interest rate hike

Home-owners with an average $300,000 mortgage can expect to pay an extra $46.21 on their monthly repayments assuming retail banks match the Reserve Bank of Australia’s 25 basis point hike in the cash rate.

The market had expected the decision as the economy continued upon its road to recovery.

Only NAB had gone out on a limb and tipped a 50 basis point rate rise.

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“Economic conditions in Australia have been stronger than expected and measures of confidence have recovered,’ RBA governor Glenn Stevens said.

“Some spending has probably been brought forward by the various policy initiatives. With those effects now diminishing, these areas of demand may soften somewhat.
“Some types of capital spending are likely to be held back for a while by financing constraints but it now appears that private investment will not be as weak as earlier expected.

“Medium-term prospects for investment appear, moreover, to be strengthening. Higher dwelling activity and public infrastructure spending are also starting to provide more support to spending.

“There have been some early signs of an improvement in labour market conditions. The rate of unemployment is now likely to peak at a considerably lower level than earlier expected.”

This rate increase marks the second consecutive rate rise by the central bank after its official rate had stayed a 49-year low of three per cent for part of this year.

A 25 basis point increase to the official rate means an additional $46 a month in repayments on a $300,000 home loan, according to comparison website Canstar Cannex.

Today’s decision is expected to be part of a series of rate rises as the Reserve Bank goes about “normalising” its official rate.

Economists still expect the Reserve Bank to have raised rates to 4.25 per cent in six months’ time.

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