Are You Ready For A Rise In Interest Rates? – Mark Lewis
It’s been over a decade now since the Reserve Bank last increased the Cash Rate in November 2010, so it’s a fair chance that most people haven’t seen a rise in their interest rate on their current loan.
In fact, with the current cash rate at a record low of 0.10%, for the last couple of years interest rates have never been lower.
Throughout the period of the pandemic, the RBA has been pouring money into the economy and stating that interest rates would not increase until around 2024 at the earliest.
However, with the recent and sustained rapid rise in the CPI, along with other leading economic data, we may well be seeing interest rates rising much sooner.
Leading economists and market data are now suggesting we could see the RBA raise rates as soon as June, with a succession of increases over the ensuing twelve month period.
Are you ready for a potential increase in your monthly home loan repayments?
When you first applied for your loan, your borrowing capacity was calculated using an interest rate higher than the market rate at the time, usually 2-3% higher. So provided your household income hasn’t reduced, your monthly living expenses haven’t increased and you haven’t taken on any additional debt since you took out your home loan, you should be ok, thanks to those built in buffers.
On an average home loan of $350,000, a 0.25% increase in interest rates will increase your repayments by around $50 per month. But if interest rates rise by a full 1.00%, then expect your repayments on that same loan amount to increase by around $200 per month.
If you want to work out how potential interest rate increases will affect your specific loan, head on over to our loan repayment calculator here
Our best advice is to get on the front foot and start preparing now for potential increases. This could include taking a proactive approach and increasing your current repayments now, to take into account future rate increases. This will allow you time to adjust your other household expenses to balance your budget.
However, if your household income has reduced since you took out your home loan, your living expenses have increased significantly, or you have taken on additional debt, it might be a good idea to touch base with your Bernie Lewis Home Loans mortgage broker and conduct a full review of your scenario to ascertain what options are available to you.
Don’t wait until it’s too late. We are here to help! A review of your loan and household budget costs nothing more than an hour or so of your time, and could mean you comfortably navigate your way through higher interest rates as opposed to suffering financial stress.