How To Tackle Rate Rises

The consistent rise of interest rates has become a significant cause for concern for many home owners. Small rises of a fraction of a percent can equate to an increase in additional expenses per a month, for many, this can really stretch the budget to anxiety-bursting levels.

Interest rates are controlled by the Reserve Bank of Australia, they began  lifting the rate rises to combat the rise in inflation – the general cost of everyday goods. The logic is simple; by raising interest rates, the rate of inflation  will be slowed and eventually bought back down to controllable levels.  

This doesn’t help the average home-owner who is not going see a drop in the price of lettuce any time soon but still must endure the increase in their monthly repayments.

There are several things you can to do fight the good fight against rising interest rates.

1. Understand How It Impacts You.

Know your enemy. You need to understand how the rate increases will impact your bottom line in actual dollars and cents. If you have a financial planner, mortgage broker or someone who assists you in these matters, now is the time to book in that quarterly, or yearly catch up. By understanding how much more money you need to find each month, the problem becomes a tangible one and you can start to make the appropriate plans.

2. Re-work The Household Budget

If the rates increase by x%, then you must find the increased repayment in the budget somewhere. You’d be surprised how much money you could be  literally throwing away, not through careless spending or even by being an over-consumer, but by the hundreds of little items that crop up every week that you have to find a few dollars for. In our series of LinkedIn posts, we’ve been providing some tips on how to boost your budget. These tips are not going to cripple your lifestyle but, how many streaming services does one need – something we are all guilty of. 

3. Build a Buffer

This is not so much as an advanced play but as a savvy ‘planning for the worst’ . If interest rates continue to rise, so too will your repayments. By decreasing  more of your  debt down now, the total amount owing will be less than it would have been. This makes the overall interest that you will owe less than what it would have been and thus, more manageable. This loops back into point 2 – shaving the budget down where you can.

4. Consider Switching Home Loans

An offset account attached to a loan account is an effective tool to bring down the amount of interest you owe whilst providing you a reasonable cash-flow tool if an emergency crops up. If your bank is not acting in your best interests, consider speaking to a mortgage broker about moving to a solution that better suits your needs.

5. Consider Fixing Your Rate

Variable rates are a more likely to move up and down throughout your loan period, there’s no doubt about it, but they can work in your favour more than a fixed rate. However, if you’re so stretched that you need to get forensic on the budget every month and need that same amount coming out of your accounts to pay off the loan, fixing the rates, even for a short period of time (a few years) can at least give you the comfort of consistency, we recommend before fixing your rates to speak to a mortgage broker who can look at your circumstances and suggest which product is more suitable. 

It is true that the volatility of the market is putting a lot of pressure on people, but opportunity also abounds. 

To your long-term wealth.

Michael