We understand that the recent rate rises by the RBA have caused concern among many people. The RBA has stated that these increases are necessary to combat inflation, which is currently ~7%, well above their target range of 2-3%. While some may view the RBA’s actions as risky, it is important to note that controlling inflation is a key responsibility of the central bank.
When the cash rate goes up, most banks will raise your interest rate, too. This means that your monthly repayments may increase accordingly. For example, an increase of 0.25% on a $500,000 home loan would add about $80 to your monthly repayments. If you are coming off a low fixed-rate term that began in 2020 or 2021, you may be facing an interest rate more than 4.00% higher than your fixed rate. On a $500,000 home loan, that could mean an additional cost of about $1,325 in your monthly repayments.
However, if you are proactive, there are several strategies you can adopt to deal with rising interest rates. These include:
Review Your Budget
Take a close look at your income, expenses, and debts to determine where adjustments can be made to accommodate higher repayments. Identify areas where you can cut back or make adjustments to reduce expenses and free up additional funds for mortgage repayments.
Negotiate With Your Lender
Talk to your lender about a lower interest rate. If you are coming off a fixed rate, you could be rolling onto a higher variable interest rate than what your lender is offering new borrowers. You can take the help of a mortgage broker in negotiating a lower interest rate from your current lender.
Refinance To A Lower Interest Rate
If your lender is not willing to offer you a competitive rate, look at other lenders that will. We can provide assistance with refinancing options, helping borrowers get more competitive interest rates and monthly repayments, consolidate debts or access equity in their homes.
Make Extra Repayments If You Can
By making extra repayments now, you lower your principal more quickly, reducing the amount of interest charged on your home loan and also paying off your loan faster, which means you’ll be less affected by future rate hikes.
Extend The Loan Term
By spreading the cost of the loan over a longer period, you will decrease your monthly payments. However, this also means paying more interest over the loan’s lifespan.
Get Home Loan Features Like An Offset Account Or Redraw Facility
An offset account or redraw facility can help borrowers save money by reducing the amount of interest they pay on their home loans.
Fix Your Home Loan
Fixing your home loan can be a good strategy for managing rising interest rates. By locking in a fixed rate, borrowers can avoid the risk of further rate hikes and potentially save money on their mortgage repayments.
It’s important to carefully weigh the pros and cons of each strategy and consult with a mortgage broker before making any decisions.
At Mortgage Choice Sydney, our experienced brokers are ready to assist you with any questions or concerns you may have about rising interest rates. We can provide guidance on which strategy is best for you based on your individual financial situation.