When the Reserve Bank raised the cash rate to 2.85 per cent this month, it pushed some mortgage borrowers to their "stress test" limits.
What does this mean?
What's a mortgage 'stress test'?
When assessing someone for a new mortgage, bank loan managers conduct a "stress test".
They add a few hypothetical percentage points to the actual mortgage rate to make sure the potential mortgage holder can withstand a series of interest rate hikes.
The November rate increase by 0.25 percentage points by the Reserve Bank of Australia (RBA) — its seventh straight increase since May — means the cash rate is at its highest level since April 2013.
This latest rate hike also means that many borrowers are at the limit of what they can afford to pay, with some moving beyond their "stress test" buffer.
What does the latest interest rate rise mean for borrowers?
Economist Angela Jackson says the RBA's own forecasts have previously shown a 2 per cent rise in interest rates would push 10 to 20 per cent of all households into mortgage stress.
The cash rate has now risen by more than that.
"That's a significant number of households in debt stress," she says.
In real terms, for a $500,000 mortgage with 25 years remaining on the loan, monthly repayments will rise by a further $74 a month — that's a total increase of $760 since the rate hikes began in May.
For a $750,000 loan, borrowers will pay an extra $112 per month — which is a total increase of slightly more than $1,000 since May.
Dr Jackson said a big concern for many borrowers was moving into negative equity.
That's when the value of a home falls below its loan amount. This can lead to forced sales to allow the bank to recoup its money.
"We know a lot of borrowers are in significant financial stress," Dr Jackson warns.
Rate hikes have happened before
The last time rates rose this aggressively was in 1994, when the central bank hiked rates from 4.75 to 7.5 per cent — a 2.75 per cent increase over five months.
Journalist and academic Jenna Price told The Drum that she was paying off a mortgage in the early 90s and cried every time they raised rates in 1994.
"Every time there was a new interest rate hike, I was completely freaked out about the mortgage," she says.
"We decided we were going to buy a house with three bedrooms, which we really couldn't afford, and we built another bedroom and really couldn't afford that either.
"This is what happens when you have three kids — and I panicked."
However, she decided to take control of the situation and talk to her bank.
"The thing that kept me in one piece was recognising that I had some power with my bank," she says.
"We must have changed our bank about five times over five years.
"I really advise everyone to do that now — get on to the phone to the bank … go to a mortgage broker, go and have a look at those comparison sites."
Will interest rates go back down?
To bring inflation back down, the RBA raises interest rates to make borrowing more expensive by reducing demand in the economy.
The only way interest rates will come down again is if inflation falls.
Both the RBA and the federal government claim they're doing their best to achieve that, but the federal Treasurer has warned inflation is still on track to get worse before it gets better.
