The RBA has again chosen to leave the cash rate on hold for a staggering 15 consecutive months, in spite of investors driving demand for home loans to record highs – though signs of a weakening property market are present which will be a challenge in the near term says Glenn Stevens, Governor of the RBA. This is good news for people seeking a mortgage or making home loan repayments. But many believe that the only way for interest rates to move is up.
The Reserve Bank of Australia has expressed concern over the increasing level of household debt relative to income. The RBA says that Australians should be aware that wages are behind increasing costs and gave a reminder that interest rates will inevitably rise. The warning highlights the importance of adding in some ‘wriggle room’ when calculating home loan repayments. The RBA pointed to NSW and Victoria as the areas where the payments to service mortgage debt is close to historical highs, due to the fast growth of house prices in those states.
In a recent survey more than half of mortgage holders have no plan in place for how they will cope with interest rate rises.
It’s impossible to know exactly when a rate rise will happen. A rise could be as gradual and as a quarter percent each time, or there could be larger half or full percentage point increases. Either way, the changes will affect anyone with a mortgage.
It’s worth looking at what the changes would mean to your interest rate and mortgage payment. You can use our home loan repayment calculator to work these figures out. Enter how much your original loan amount was and your original term. Then increase the interest rate by .25% .5% and even 1%. You’ll see the amount you’d pay each month.
A budget will show what money you have coming in, what money is going out, and most importantly, how much you have left at the end. Our budget planner tool will help you do all of this.
If increased mortgage payments mean you go from managing ok to struggling to get by, use the budget to look for areas you can cut back. Are you spending a big amount each month on travel? Do you think you can spend less when out shopping?
It’s worth looking into refinancing your mortgage to see if you can take advantage of current rates. For certainty you could lock into a fixed rate. If your fixed rate is coming to an end, the earlier you prepare the better. Speak to your lender or us :-) to make sure you more to there best rate not there standard rate. You may need to move lenders to get the best deal. If your home value has increased, it may mean you have increased equity and this could be used as a buffer if times get tough.
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