Cash rate sets mortgage rates

When the official cash rate rose four times in the past four months, the outlook for housing loan repayments looked grim.

Because the cash rate is linked to mortgage rates, the cost of repaying a mortgage is gradually rising.

Acting Reserve Bank Governor Rod Carr raised the official cash rate from 5.5 to 5.75 per cent this month, but revised a monetary policy statement from May when he said the cash rate might have to go as high as 7 per cent.

That could have meant mortgage interest rates of 9 per cent. Economists still think rates will go up another 50 points to 6.25 per cent.

Banks usually put up mortgage interest rates when this happens, making it more expensive for anyone who has borrowed against their property.