What 0.25% means

As was inevitable, the official cash rate went up to 2.75% yesterday. Having go up makes it hard for those with mortgages and increases the cost of borrowing for businesses. But the alternative is letting inflation get out of control, which really harms people on low and fixed incomes. High inflation will not in the long term lift economic growth.

If someone has a $400,000 mortgage 25 year mortgage, then an extra 0.25% on a say interest rate sees the weekly repayments go from $594 to $608 a week. So one increase doesn’t impact a lot, but many of them will.

2.75% is still a historically very low rate. In 2008 the ocr peaked at 8.25%. An ocr of 8.25% might see mortgage rates of 11.75% which has weekly repayments at a staggering $954 a week.

 

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