With interest rates tipped to rise incrementally as the RBA begins to return the cash rate to a more “normal level”, homeowners are wondering how to best handle this new environment.
In fact, there is a significant number of current borrowers who have never experienced a rate rise, given that the RBA hasn’t increased rates in over a decade.
Fortunately, there are few ways you can prepare for anticipated interest rate rises.
The first thing to do is – don’t panic. We’re here to help!
To begin with, it’s worthwhile noting that if you’ve taken out a home loan in the last few years, it’s likely your home loan application was assessed with a serviceability buffer added. That means that the lender approved your loan assuming that higher repayments were still within your budget.
So now that you have the confidence that you’re OK for the short term, what can you do next?
Most lenders have recently increased both their fixed and variable interest rates. Some lenders are also offering competitive introductory rates and cash rebates for refinances.
There may, therefore, be a different home loan product that better suits your needs and offers a more competitive interest rate and features, than you have with your current loan.
So it’s a good idea to contact us to have your loan structure reviewed.
Over the past few years, there has been a larger proportion of borrowers taking on fixed-rate home loans.
This has proven to be a beneficial move for them in the short-term, as they have been able to lock in record-low interest rates.
If you have been one of these borrowers, as your fixed rate period edges closer to expiry, it’s important to look closely at your options.
Typically, at the end of the fixed-rate loan term, you can either:
It’s well worth asking us to compare your options ahead of time so you know what you are going to do before the fixed term expires. You can then compare your options and how the subsequent repayments might change in the future so you can position yourself with a solution that is right for your personal circumstances.
If your repayments are likely to increase, then it’s beneficial to be proactive and make sure you have a good financial plan in place.
Now is a great time for you to review your household budget, particularly food, entertainment, electricity and insurances (eg could you change providers?) and save to create some surplus funds. You can then put those funds aside for future use.
Due to the various lockdowns during the Covid-19 pandemic, many borrowers may have been able to accumulate some savings.
Similarly, some borrowers continued to pay the higher original repayments rather than reducing their repayments as interest rates reduced.
As such, they would have funds available for redraw, or would have funds available as payments in advance.
Either of the above could be utilised to meet the higher repayments for a period of time, while you’re assessing what to do for the long term.
There are also a number of cashflow strategies that we can tailor to your needs.
Our long-established discovery session will reveal whether your home loan is working for you as well as it could/should be, is it structured in your favour and is it in line with your future goals and aspirations, does it just need a tweak or a complete makeover?
Whatever the case we are just a phone call away and happy to help. If you would like to chat to us about reviewing your home loan, or about finance and/or property in general, please feel free to give us a call on 02 8004 2222 or book an appointment.
Although we are located in Crows Nest, we service clients from St Leonards, Artarmon, Wollstonecraft, Cammeray, Northbridge, Naremburn, Neutral Bay, Greenwich, North Sydney, Waverton to Willoughby and all areas of Greater Sydney.
PS This article is prepared based on general information. It does not take into account individual financial or property objectives or needs and is not financial product or investment advice.