Putting Rate Rises in Perspective – How Much Will They Impact You? - May 2022
By Guest Blogger, Louisa Sanghera, Principal Broker,
Mortgage interest rates increased by 0.25% following the Reserve Bank’s cash rate hike, and they’re likely going to increase again in June. If you have a mortgage, how can you prepare for these impending rises?
Unfortunately, mortgage repayments are set to increase substantially over the next 1-3 years. After many years of very low interest rates, we’re now entering a phase where rate rises will become a fact of life.
What can you do about it?
Step 1: Work out the actual impact
With so many media headlines shouting about the increases that are likely to take place, it can be a little confusing and scary trying to work out exactly what this means for you.
To work out what the actual impact will be on your weekly budget, you can use a mortgage calculator to input your exact mortgage value and crunch the numbers, based on an increase.
Here’s an example of what you could expect to pay, based on a principal and interest loan over a 30-year loan term:
Step 2: Check this against your budget
While every increase makes an impact, it’s important to look at the actual facts and figures and work out the impact to your budget.
In the above example, the increase in interest rates works out to be $25 a week. While not nothing, this is an increase to the weekly budget that most of us can sustain.
Now, when this gets multiplied by a few rate increases in a row, the impact on our hip pocket could be a little more challenging. If you’re worried your budget might be stretched, then it’s time to look at step 3.
Step 3: Look for a better deal
No matter how old your mortgage is, there’s a decent chance you could get a better deal by shopping around. As mortgage brokers, we have a broad overview of dozens of different deals and offers on the market.
We can help you match you up to a mortgage with a lower interest rate, or perhaps even a home loan that comes with a cashback offer. These offers are worth up to $4000, which is cash in the bank – this could be handy to set aside, to help you pay for your increasing mortgage bill.
Step 4: Restructure your debt
If you’re still worried about your ability to cope with rising interest rates, consider this. It’s likely that your property value has risen considerably over the last two years. You’ve also been diligently repaying part of your outstanding loan balance with every single payment you make each month.
Now, your overall debt is lower than it was when you started. If you want to lower your repayments, you could shop around for a cheaper interest rate and a lower loan balance. e.g. :
- Old loan: $750,000 total balance @ 2.5%
- You’ve repaid $25,000 off the principal
- You take out a new loan of $725,000 @ 2.4%
- Your repayments drop from $2,963 to $2,837
That’s a saving of $126 a month. That could help to cancel out at least one interest rate increase.
Your other option is to borrow the full $750,000 amount again, so you have $25,000 equity in your offset account. This “rainy day” money can help you manage financially as the broader cost of living, and your mortgage, increases this year.
Of course, these are complicated decisions with potentially long-term impacts, so it’s important to consider the bigger picture and get personalised advice that suits your situation.
Before you wait too long to apply for a loan, remember that when interest rates rise, it could lower your borrowing capacity even further and put your property dreams further out of reach. Whether you own a property already and you’re looking for a better deal on your mortgage, or you’re considering entering the property market and you want to know what your options are, speaking with a mortgage broker can help.
Contact us today on 1300 855 022 or visit www.zippyfinancial.com.au
Louisa Sanghera - Director and Principal Award-Winning mortgage broker at Zippy Financial
Louisa created Zippy Financial after a 25-year career in banking, with the goal of using her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients grow their wealth through smart property financing. Whether you are looking to buy your first home, re-finance or build your property investment portfolio, Louisa and her team of experienced brokers can help guide you through the challenging maze of finding & securing exactly the right loan for you.
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