By Guest Blogger, Louisa Sanghera, Principal Broker,
Zippy Financial
It’s impossible to know exactly how much interest rates will rise in the next year or two, or when they will start to increase. But one thing we do know for certain is this: they will rise.
Some experts are suggesting mortgage interest rates will increase by around half a percent in the next six months, while others argue we could see a 2% increase by the end of next year.
Either way, it’s important to look at your budget and your financial situation now, so you can plan ahead for the eventual increase in your budget.
If you’re worried about the extent of interest rate rises, keep in mind that all increases will be introduced gradually. The Reserve Bank that increases the cash rate (and thereafter, the lenders who increase your mortgage rate) generally do so in increments of 0.25%.
It’s widely expected that the first increase will be 0.15%, to move the current cash rate from 0.10% to 0.25%. After this, increases are likely to be in amounts of 0.25% at a time. It’s true that we could see a couple of increases in a row, but it’s more likely that each increase will come with a month or two break in between.
The most important thing you can do from here is get prepared in advance. Given that we are now entering a phase of interest rate rises, how can borrowers best prepare themselves for the inevitable increase in mortgage rates?
Tips from a home loans expert to manage higher mortgage repayments
Some in the industry may argue that home loan interest rates are simply returning to a more normalised level, and that borrowers have “had it too good for too long”. They might be right; historically, interest rates have hovered around 6-7%.
But this type of comment doesn’t really help someone who has a mortgage right now, and is worried that they might not be able to pay it in the next year or two! So, here are my tips to help you ensure you can stay on top of your repayments:
Tip 1: Review your mortgage - pronto
If you have a home loan and you haven’t checked out the details in the last 12 months, now is the time to do so. You could be paying more than you need to; did you know, for instance, that many banks will offer new customers a lower interest rate than existing customers? Check your current rate to see what you’re paying today. Then…
Tip 2: Contact your bank
Make sure you’re not paying too much by checking the interest rate you’re paying with the interest rate the bank offers new customers. Then, call them. Ask for a discount. Tell them you’re thinking of refinancing and you’d like to know if they’re willing to offer you a discount to keep your business? They could say no or, they might shave off some of your repayment, giving you an instant saving.
Bonus tip: If you do secure an interest rate discount and your repayments go down, set up a direct transfer of the difference into a separate bank account that you don’t touch. If you let that money build up over time, you can use it towards your mortgage repayments when they increase. Or simply leave the direct debit instalment as it is and leave the extra money sat in your mortgage.
Tip 3: Review the market
Whether your bank agrees to a discount or says, “no deal”, have a quick look around at other deals that might be out there. This is where a mortgage broker may be able to help - we take stock of your situation and review the market for you, then come back to you with the best offers and deals to suit your needs. Shopping around could see you save hundreds or even thousands of dollars a year on your home loan.
Tip 4: Look for cash-back deals
Many lenders are currently offering cash-back deals of up to $3000 or more when they approve you for a loan. There are a few fees and charges involved when you refinance, but if you find a loan that suits your needs and it offers cash-back, you could still bank $2-2,500 from your refinance. Set this money aside in a bank account you don’t touch or consider making an extra repayment in your variable-rate home loan now: you’ll instantly make savings on interest.
Tip 5: Start saving
Interest rates are going up, and your mortgage repayments will go up with them. Use an online mortgage calculator now to work out how much your repayments will be if interest rates rise by 0.25%, 0.5%, 1% or even more. Once you know how much the difference is, look at your budget to find ways to set this money aside now. This way you’ll know you can afford the repayments when rates rise, and you’ll build up a small nest egg to help you deal with rate hikes when they flow through.
If you calculate your future repayments and realise you might have trouble making repayments at the higher amount, it’s a really good idea to reach out to an experienced mortgage broker. They can look at your overall situation and potentially restructure your debt, so you don’t get into financial stress down the track.
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.
M: 0414083522 or 1300 855 022
E: louisa@zippyfinancial.com.au
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