And so the banks have passed on the increase....

For anyone who has a home loan, it is unlikely that it has escaped your attention that the RBA increased the official cash rate Melbourne Cup day this week.

What was initially looking unlikely became very likely as this week's meeting approached, with economic data not coming in where the RBA needed it to be to maintain its 'pause' from lifting the cash rate.

Since Tuesday's announcement, it hasn't taken long for the banks to follow the RBA increase in the cash rate with all major banks, CBA, NAB, Westpac and ANZ matching the 0.25 increase for existing home loan customers and new customers. A number of other banks have also followed suit including, but not limited to, Macquarie, ING and ME Bank,

The biggest take out of the RBA decision and that of the banks with regards to interest rates is that we must continue to manage our expectations. Any first home buyer contemplating buying their first home must calculate their sums and affordability based not only upon the current rate being offered, but at least 2 interest rate points higher. Irrespective of what you can currently afford to borrow and repay, it is crucial that any possible future rate rises are factored into your calculations to ensure that you do not feel significant duress if any further rate rises are announced between now and the end of the year or early next year.

For existing home loan customers, if home loan repayments continue to be affordable, while no one likes to hear that rates have yet again gone up, continue to do what you have been doing. Consider your budget and how this increase will impact upon you. Project into the coming months what it will mean for your budget if another rate rise comes before Christmas or in the New Year and if possible plan around this. It may mean being forced to make different decisions coming into Christmas and the holiday period but it is better to have thought this through rather than reacting as it happens to you in the future.

For home loan customers who are beginning to get into trouble with regards to their home loans, there are several options that may be considered with the advice of your Mortgage Broker and in consultation with the bank. The first step may be having a chat with your current bank to see what your options are. Even if rates have gone up, if you have been in your home loan for a number of years, they may still be willing to move a little with regards to your current rate.

Other possible strategies that a bank may offer you is the option to extend your loan term back out to 30 years, consider interest only repayments or a repayment pause. Such strategies should not be entered into lightly and must be done after receiving advice and by speaking with your current bank.

It certainly was not news that any home loan customer or first home buyer would have wanted to hear this week. It's now making decisions about what we therefore do from here.