Rate rises start to bite

Five interest rate rises over the past year are affecting the ability of home loan borrowers to pay off their loans. The Commonwealth Bank says 80 per cent of its home loan borrowers pay more than their minimum monthly repayment but predicts this will fall to between 50 and 60 per cent. Borrowers have made the most of low interest rates over the past three years and set their repayment levels well above the minimum to reduce their outstanding loan amount faster than required. This buffer zone has been eaten away by the recent interest rate rises with the latest rise producing, for some, the first actual increase in their repayment. Economists predict that standard variable home loan rates could reach 8.8 per cent if expected further rises to official interest rates materialise. However, Chris Gosselin, CEO of Market Faxts, publisher of BankChoice, believes that most borrowers should be able to absorb the increases without too much difficulty as the banks factored in higher interest rates at the time of approving loans.