Mortgage rates back above 7 per cent

The Reserve Bank has lifted interest rates for the second month in a row in December, which will see the standard variable home loan rate rise above 7 per cent for the first time since March 2001. The 0.25 per cent rise takes the official cash rate to 5.25 per cent and this will flow through to variable loan rates over the next week or so, lifting repayments on the average 25-year, $200,000 home loan by $32 a month at a rate of 7.07 per cent.

The RBA statement announcing the rate rise pointed to the ongoing improvement in the world economy, strong economic performance at home and accelerating levels of consumer borrowing as the reasons for lifting rates again. It said that despite the first interest rate rise, rates remained stimulatory when they no longer need to be. This raises the spectre of more rate rises sooner rather than later. The half a per cent lift so far still leaves interest rates below neutral levels when arguably they should now be at restrictive levels.

Rates may well move higher over the next year than the forecast 1 per cent overall rise.

Infochoice's RateWatch outlines in detail the economic background to why rates are on the rise.