! Article updated May 4 2022 !
In the last few days we’ve seen the RBA increase interest rates for the first time in 11 years to a mere 0.35 per cent. With big lenders like Commbank and ANZ already announcing they’re hiking rates in the coming weeks but, where does that leave your mortgage?
Firstly, not all lenders will necessarily pass on increases at the same level and nor do they forecast the same future for interest rates. Economists at the major banks remain deeply divided about how high interest rates will rise. With a 1.6% forecast at Commonwealth Bank up to more than 3% tipped by ANZ. Westpac was somewhere in the middle tipping a 2% cash rate sometime next year.
It’s important to note here that rate rises apply to the non-fixed portion of your loan, so your mortgage will increase based on the portion you have under a variable interest rate.
As an example, if you’ve got $500K in a variable loan attached to your mortgage, your repayments could increase by around $65 per month. For many, variable portions are less than that, and although there’s still an increase in your repayments, you may not be hit too hard.
It’s also important to remind ourselves that higher interest rates are not a bad thing, it signifies a strong economy. When interest rates are high the economy is pumping. Businesses do better, employees earn more, savings in the bank get a better return so our self-funded retirees are happy, and homes historically increase in value as do their rental returns.
With builders still struggling with supply issues, the RBA will be keeping a close eye on housing supply as this could push house prices even higher and further out of reach for first home buyers.
In short, it’s a great time to be a home owner and it’s more important than ever to have a trusted mortgage broker by your side to guide you through uncertainty brought about by these factors.
Use your @Finance broker to weigh up your loan options. Most fixed rates are already higher than the variable rates on offer so with the assistance of your broker you can work out if it is more beneficial for you to ride out the variable rate, knowing that rates are on the rise, or lock in a fixed interest rate on your current loan to have a bit more certainty.
This may sound simple but, there are a lot of variables that your broker will help consider when making this decision – for example:
- Do you have a lot of savings?
- Do you use an offset account or make extra repayments on your loan? (These features may be limited when choosing a fixed rate).
- What rates are on offer to you? Just because there is a cheap interest rate loan on the market does not mean that you meet the criteria to be eligible for this loan. Your @Finance broker with assist to work out the true cost difference between fixed and variable rates that you qualify for, and work out what works best for your individual circumstances.
Banks spend big money on economists to make sure they are not losing money so a smart place to begin is by looking at the fixed rates on offer is a good way to gaze into the future of what these highly paid economists are predicting rates will do moving forward.
And if you are thinking of buying a property in the future, there is no better time than now. As the interest rates rise so will the benchmark servicing rates, which means it will get harder to borrow money as the rates go up. Banks service your loan at a higher rate to make sure you can still afford the repayments if-and-when rates go up – the current benchmark rate sits around 5.25% with most banks, but this will get higher as rates increase.
The below article was written before the rate rise, but the advice within is even more relevant now. #3 in our list of things to do below is great advice, but now the best advice is certainly this; speak with the @Finance team ASAP and you might find you’re future proofing your mortgage repayments in a way that could save you thousands… We’ll let you decide your course of action once you’ve taken a look over the below and we look forward to working with you when the time comes.
As we continue to navigate undulating financial situations here in Australia it seems the focus now is on the RBA and Interest Rates.
With the Federal election looming ever closer, the federal budget hot on our heels and now with the announcement of the highest inflation rate in 20 years, there feels like a storm of factors pointing to a pre-election decision from the RBA to lift the cash rate.
It’s not just homeowners and property investors expecting this, the dramatic jump in the cost of living (inflation rates just announced are well above what was expected) has most of the population pretty sure there’ll be some changes coming sooner than previously expected, likely in May.
As an aside, the last time the RBA lifted interest rates this close to an election was back in 2007, which was seen as a monumental moment in the defeat of Prime Minister John Howard. Are we seeing something similar in the lead up to the 2022 election? Prime Minister Scott Morrison is likely concerned, as would be the rest of his cohort but we digress slightly.
So, what does all this talk of inflation, interest rates and elections mean for you?
Well, as we collectively manage the upward trend in the cost of living alongside potential rate increases it is becoming even more important that you’ve got the right budget and structure in place when it comes to your finances. Here’s what we suggest …
1: Create an air-tight budget and stick to it!
We’ve got a budgeting tool that can help you refine yours or get started if you haven’t already, and we also offer free 30 minute budget sessions, but bookings are essential. You can book yours here.
2: Use your budget as a weapon
It may sound silly, but a powerful budget used with discipline can be your best friend. It will put savings in your pocket, allowing you the freedom to coast through any rate rises and potentially give you the power you need to invest in something that’ll set you up down the track (like a good investment property can).
3: Managing existing debts
Having the right structure to any debt you have could save you thousands of dollars each year especially If/when interest rates rise. Consolidation is a great option for many, and there are many forms of debt consolidation to explore. Considering the current landscape, it’s well worth looking into your options sooner rather than later. We can help assess your situation and give you the best options (even if that means keeping your debt as is). Again, reach out to our lending specialists to start the process of freeing up some of your money.
Now is the time to be in control of your money and your situation and we’re here to help you take it. Call the team on 1300 469 840 or send us an email, and let’s get set to make 2022 your best year yet.