Rates in home straight

Herald-Sun, 5 November 2007

PUNTERS with an average Melbourne mortgage will have to win enough cash on the Cup to pay an extra $51 a month off their home loan.

That's if, as tipped, the Reserve Bank of Australia cranks interest rates up by another 0.25 percentage points to 6.75 per cent.

The repayments on a $304,000 average Melbourne loan will jump to $2462 a month on a 8.57 per cent standard variable mortgage.

The RBA board meets tomorrow and will announce its decision on Wednesday.

Despite the threat of a rate rise, the Melbourne property market continued its tearaway form at the weekend.

Agents recorded an 83 per cent clearance rate on Saturday despite it usually being a quiet weekend for auctions.

The expected rate rise, which follows last month's disappointing inflation figure, will be the sixth since 2004 when the Coalition won the federal election on a campaign promising low interest rates.

The six rises equate to an increase of $246 a month -- or $2952 a year -- on the repayments for a typical 25-year loan of $250,000.

The latest threat of an increase comes as research reveals 83 per cent of home buyers with fixed-rate home loans ended up worse off than people who had standard variable loans.

Analysing RBA data since 1990, mortgage provider QuickDirect compared basic variable rates with the big banks' average three-year fixed rate every month to 2004.

Rate rise speculation often scared people to lock in fixed rates, but they often did so at the wrong time and ultimately paid more in extra interest in the long run.