Experts are predicting another increase to the cash rate on Tuesday, adding further pressure to household budgets ahead of Christmas.
A 25 basis point rise, as most economists are expecting, would take the cash rate to 3.1 per cent and mark the eighth consecutive rate rise this year.
A 25 basis point increase would add $82 to the cost of monthly repayments for a $500,000 loan, if passed on by banks in full, comparison website Finder says.
Adding it to this year's rate rises, home owners could be looking at nearly $900 more per month compared to what they were paying in April.
But the worse could be yet to come for borrowers whose fixed rate ends in 2023.
In its October Financial Stability Review, the Reserve Bank of Australia estimated 35 per cent of outstanding housing credit was on fixed-rate terms.
Two-thirds of those loans are due to expire by the end of 2023, which could mean interest rate increases of 3 to 4 percentage points when they revert to variable rates, the review stated.
Mortgage stress could worsen in 2023
Following a further decline in national home values last week, CoreLogic research director Tim Lawless said next year would be a "test of serviceability and housing market stability" as the record low interest rates of 2021 ended.
Mr Lawless said it was likely the Reserve Bank would raise the cash rate to 3.1 per cent on Tuesday, a cumulative increase of 3 percentage points this year.
"Importantly, this takes interest rates to the limit of mortgage serviceability assessments recent borrowers were 'tested' on," he said.
"To date, bank reporting shows mortgage arrears have held around record lows, but 90-day arrears rates are likely to rise over time given the higher interest rate setting and elevated inflation against a backdrop of record levels of household indebtedness.
"If interest rates move materially beyond 3.1 per cent, it is reasonable to expect a more substantial rise in mortgage distress, especially when considering the high cost-of-living pressures."
Nick Lucey, director of Canberra financial planning firm Nest Advisory, said he had been working with borrowers whose fixed rate had ended, in some cases taking their interest rates from around 2 per cent to more than 5 per cent.
That had meant spending more time than usual on pricing discounts, he said.
"Without having to do a whole refinance, all we have to do is submit a pricing request to the bank, which is just kind of saying, 'Can you do a better deal'?" Mr Lucey said.
He said more often than not, the banks came back with a better rate.
"If the lender isn't willing to play ball and aren't going to do enough then [the client] might look to refinance, which we're doing a bit of at the moment, so long as it's beneficial," he said.
Canberra home owners prioritise extra repayments
But for the most part, Mr Lucey isn't expecting "mayhem" in 2023, as serviceability buffers and conservative borrowing protect some Canberra home owners against higher interest rates.
"I'd say most people we see aren't borrowing their absolute maximum possible," he said.
"What we're seeing with people is they do have extra capacity to pay more if they want to."
Extra repayments have been a priority for Canberra couple Lauren Hassall and James Hawketts since they purchased a house in September.
Mr Hawketts said they had structured their mortgage with the goal to pay it off as soon as possible.
"We planned to buy a property that we could afford the mortgage of and then pay off extra each month to get rid of the mortgage a lot faster," he said.
The pair aims to contribute up to $2000 a month in additional repayments to pay down the loan sooner.
"That was our buffer zone, so if interest rates did rise we would still be fine and we would just go a few years while they were higher without paying the extra off and then as soon as they come back down again, we're still going to keep paying that higher amount," Mr Hawketts said.
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