Interest Rates Rise by 25 basis points.

According to recent data, the inflation figures for December in Australia reached a surprising 7.8%. This increase in inflation has prompted the Reserve Bank of Australia (RBA) to raise the cash rate by 25 basis points of 0.25 per cent up to 3.35%. Read more about it here.

The RBA’s primary goal is to maintain price stability and control inflation. With inflation reaching such high levels, the central bank believes that increasing interest rates will be necessary to keep prices in check. This decision could have far-reaching impacts on the Australian economy, affecting everything from consumer spending to the housing market.

Higher interest rates typically make borrowing more expensive, which can lead to a decrease in consumer spending and overall economic activity. This could damper the country’s recent economic recovery, which has been largely driven by consumer spending. At the same time, higher interest rates could also be good news for savers, who may see an increase in the return on their savings accounts.

A rise of 25 basis points will increase your monthly repayment for a mortgage valued at $500,000 by $77, giving consumers less disposable income.

All lenders would also have a buffer by assessing a client’s potential to repay the loans should the interest rates go up, and this is referred to as the assessment rate. Although an assessment rate is generally a few per cent higher than the interest rate of the product, if the interest rate exceeds the assessment rate or if there are changes in financial circumstances after interest rates have gone up, it may negatively impact one’s ability to repay their loan.

Higher interest rates can make it more expensive for people to take out mortgages, which could slow the housing market’s growth. On the other hand, it could also cool down the heated housing market and prevent a housing bubble from forming. We should see more sellers as home loan repayments become more expensive in the upcoming months.

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