The Reserve Bank of Australia has announced the official cash rate has increased to 4.35% at the November meeting.
When there’s so much noise in the market, it’s important to know the facts and arm yourself with information about your unique situation, so you can take charge and plan for your personal circumstances.
Interest rate changes are normal and come with homeownership.
First things first, before May 2022, Australians hadn’t seen a cash rate increase since 2010 which means a huge number of homeowners had never experienced an interest rate rise. For these homeowners, it’s important to know that we’ve been in an artificially low interest rate environment. Interest rate changes however, up or down, are a completely normal and part of any market cycle.
Over the life of your loan, there will be many increases and decreases. While many economists are predicting interest rates could go up over the coming 24 months, we are unlikely to see a return to the previous highs. For example in 2008, the cash rate was over 7%.
The buffer you already had could help in managing increases.
Did you know, when you applied for your home loan, your lender assessed your ability to repay it even if rates were to rise to a much higher level? In more recent times, this has been as much as 3% higher than your current rate. This is a requirement of the financial regulator, to make sure Australians had the capacity to repay when rates returned to more normal levels.
While a rate rise may require you to reassess your household budget, you should take comfort in knowing your lender has assessed this additional capacity. If you want to discuss your repayments or budget, just give us a call.
Understand your personal situation – don’t get caught up in the headlines.
It’s so easy to get caught up in dramatic media headlines about interest rate changes and what they could mean for homeowners. Try not to get distracted by this kind of noise and take control of your personal situation.
As a starting point, you can use a simple online calculator to give you an idea of how your repayments could change with rate rises. Try Resolve Finance’s repayment calculator.
However, the best option is to get in contact with your Resolve mortgage broker to find out exactly where you stand in terms of your repayments and your personal situation.
Strategies to help you tackle changing markets and interest rate rises.
Most market commentators are predicting more rate rises to come, so now is a great time to think about how you’ll manage these over time. It’s important to remember no-one knows what will happen in markets, but we would expect rate rises to be gradual over time, if they happen.
These suggestions are general and may not be applicable to your personal situation.
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Have you been paying more than your minimum repayments? During the past two years of COVID restrictions, Australians have been making record high repayments on their home loans. This means many people have been paying more that their minimum repayments and are already ahead on their loan, so may be able to buffer the changes that are coming
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Can you actually increase your repayments now, and get ahead while rates are still historically low? This will help you to get ahead now and buffer increases down the track
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If you repay monthly, can you switch to repay fortnightly? Overtime this will save you money on your loan.
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For people who like certainty, a fixed rate means you know what you need to repay, regardless of changes to interest rates (up or down). You could also choose to have the best of both worlds by splitting your home loan between fixed and variable. This may provide the certainty of repayments in the period ahead coupled with the flexibility of a variable rate. There are many factors to consider when it comes to fixed rates which your broker would discuss with you when reviewing your home loan.
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If you’ve had your current loan for few years, you may have built up equity in your home and now might be a time to refinance to get a sharper rate – banks will remain competitive.
The key to any market change is understanding exactly what it could mean for you and staying focused on your personal finance goals. Try to avoid the media headlines. Your Resolve Finance mortgage broker is here to help you with any questions you may have.
