With a cash rate hike penciled in for June 2022 from all four big banks, Savvy has given its take on what will happen to mortgages this year.

According to Roy Morgan, an estimated 584,000 mortgage holders were at risk of mortgage stress at the end of 2021 - but that is a near record low with mortgage stress down from the year prior.

Mortgage stress is commonly defined as 30% of income going towards the mortgage.

This estimate comes off the back of a number of government incentives, extended repayment holidays and other relief provided through the pandemic.

Savvy CEO Bill Tsouvalas said that with record levels of government debt now on the books, the government will be 'reluctant' to bail out homeowners in order to not push inflation even higher.

"What is pleasing to note is that unemployment is at near-record lows, which should push wages higher, especially in services where employers are scrambling to fill positions," Mr Tsouvalas said.

"Refinancing at a lower rate is also better to start sooner rather than later. Because with all indicators pointing to rising inflation, rates will definitely start shifting upwards."

See Also: Is it too late to fix your home loan?

What will a 1% interest rate increase look like?

The average outstanding variable interest rate in Australia as of December 2021 is 2.70% p.a. according to RBA figures.

To illustrate what an interest rate hike could really mean, Savvy used a hypothetical example of a $500,000 mortgage over a 25-year mortgage term.

With a 2.70% p.a. interest rate, monthly repayments on this mortgage would be about $2,294 according to Savvy.

In this example, Savvy assumes a couple has an average income of $135,720 - meaning 20.3% of their income goes towards their mortgage.

With this in mind, Savvy discussed what a 3.70% p.a. interest rate would look like for this specific scenario.

Interest rate Monthly repayment Extra paid per year % income towards mortgage
2.95% $2,358 $768 20.8%
3.20% $2,423 $1,548 21.4%
3.45% $2,490 $2,352 22.%
3.70% $2,557 $3,156 22.6%

Source: Savvy

If wages rose in line with inflation, this "may not be a big a problem as it seems".

However, wages rose 2.4% throughout 2021 according to the ABS, while house prices rose 4.2% over the December quarter of 2021 alone.

Using the same example, if their wages increase by 2.3% throughout the year, they would earn an extra $3,121.56 per year. Meaning they would only need to come up with an extra $35 per year to accommodate the 100 basis point interest rate rise.

However if homebuyers don't get a pay rise at all, they may need to come up with the above figure of $3,156 themselves.

If they were to see a reduction in their income, they would immediately be plunged into mortgage stress according to Savvy.

Fixed rate mortgages have been on the rise for many months now, with ANZ and Westpac handing out rate hikes of up to 90 basis points last week.

Compared to a year ago, some fixed-rate home loans are more than 200 basis points higher, adding hundreds of dollars per month to the average mortgage.

This is despite the cash rate remaining at 0.10% since November 2020. 

According to Savvy, owner occupiers experienced a 62 basis point interest rate dip on average from July 2019 to July 2020 (3.85% in July 2019 and 3.22% p.a. in July 2020). 

A year later, interest rates fell a further 35 basis points to 2.81% p.a.

Investors could have saved, on average, 73 basis points from July 2019 to July 2020 (4.31% p.a. to 3.58% p.a.). Interest rates fell to 3.15% p.a. by July 2021. 


Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Update resultsUpdate
LenderHome LoanInterest Rate Comparison Rate* Monthly Repayment Repayment type Rate Type Offset Redraw Ongoing Fees Upfront Fees LVR Lump Sum Repayment Additional Repayments Split Loan Option TagsFeaturesLinkCompare
6.04% p.a.
6.06% p.a.
Principal & Interest
Featured Online ExclusiveUp To $4K Cashback
  • Immediate cashback upon settlement
  • $2,000 for loans up to $700,000
  • $4,000 for loans over $700,000
5.99% p.a.
5.90% p.a.
Principal & Interest
Featured Apply In Minutes
  • No application or ongoing fees. Annual rate discount
  • Unlimited redraws & additional repayments. LVR <80%
  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
6.14% p.a.
6.16% p.a.
Principal & Interest
Featured Unlimited Redraws
  • No annual fees - None!
  • Get fast pre-approval
  • Unlimited additional repayments free of charge
  • Redraw freely - Access your additional payments when you need them
  • Home loan specialists available today
Important Information and Comparison Rate Warning

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of . View disclaimer.

Image by Elisa Ventur on Unsplash

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