Interest rates in Australia have seen record lows in recent years. This has been good news for those with a home loan. But with inflation on the rise, the Reserve Bank of Australia (RBA) has been increasing the official cash rate (OCR). RBA’s Governor, Philip Lowe, has warned that inflation could reach 7 percent by the end of this year and the cash rate could rise to 2.5 per cent.
The big four banks have all passed the recent interest rate rises onto borrowers. Coupled with the rising cost of living, many mortgage holders will be feeling the pinch. Those hit particularly hard are recent home buyers – in many cases, they’ve paid record prices for their properties. Their capacity to withstand higher mortgage repayments in the face of an interest rate rise in Australia may well be limited.
But there are options available. If you’re wondering how to manage interest rate rises, or concerned about how you’ll be able to make your mortgage repayments, read on. You’ll discover some great ideas to help you stay afloat.
Refinancing involves reviewing your current mortgage, and potentially swapping your loan to another lender who can better meet your current needs, wants and circumstances. Market interest rates vary widely, and with the changing economic environment, it’s a good opportunity to make sure you have the best rate possible.
Mortgage refinancing can be a great way to reduce mortgage repayments and potentially save you thousands of dollars. It can also be easier to budget when you lock in an interest rate for a set term rather than relying on a variable interest rate loan. However refinancing can affect your ability to borrow into the future – so it’s worth seeking advice first.
If you’re not specifically concerned about the interest rate rising, as a rule of thumb, it’s worth reviewing your home loan every couple of years. This is particularly important if interest rates have changed, or if your fixed-rate period or interest-only term is about to end. It should also be considered if you’ve had a change in circumstances, such as dropping from two salaries to one, if you’re struggling to repay debts, or you have plans to renovate or purchase an investment property.
Budgeting is fundamental to feeling in control and confident about your financial future. Rising interest rates are an excellent opportunity to reassess your spending habits and how you can improve them.
Start by reviewing your finances so you know what’s coming in and how much you’re spending in the different areas of your life. That way, you have a clear base to start from. If you don’t already have a budget, Financial Spectrum has online budgeting tools to help, like our financial planning calculators. Once you have a clear view of where your money is going, you or a financial advisor can create a plan to reduce costs and get you to where you need to be.
Don’t ignore those small, seemingly innocuous purchases, like takeaway coffee and Uber Eats – they really do add up and can make a massive difference to your financial situation. Go through your latest credit card statement and note all your automatic expenses too. Look for subscriptions, gym memberships, streaming app services, and donations to charity. You may be shocked to find how much you’re actually paying each month!
The next step is to reduce expenses where you can. If you’re spending on items you don’t need, use or value, cut them out. If you’re at a crisis point, strip your budget to include essentials like food, rent/ mortgage repayments, healthcare, utilities, car expenses, loan repayments and insurance. You may want to look at strategies such as refinancing, or ways to generate more income as described below.
Generate extra income
If tweaking your budget is not enough to weather the increase in your mortgage repayments and higher cost of living, you may want to think about generating additional sources of income.
Consider any skills you have that could enable you to provide a service to others from the comfort of your own home. For example, do you have any creative skills such as writing, editing or graphic design that you could offer through sites like Airtasker or Upwork? If you love dogs, why not start a dog walking business and improve your fitness at the same time? Perhaps you’re well versed in testing websites, managing a business’ social media handles or providing virtual EA services?
As the world starts travelling again, why not rent out that spare room on Airbnb? Airbnb is super easy to sign up to and requests come in quite quickly if your space is nice and in a desirable area. Alternatively, sites like Car Next Door or Drive My Car allow you to rent out your vehicle when you’re not using it.
If you’re still stuck for inspiration, here are 6 ways to make money fast that may help you generate additional income streams and ease the pressure.
Speak to a financial adviser
One of the best things you can do if you’re concerned about interest rates rising is to speak to a financial adviser. They’ll be able to offer you advice specific to your individual circumstances to help you manage increased expenses. They will also guide you to make informed decisions to help you reach your goals faster.
Even if you’re in a stable position, consulting with a financial adviser to review your financial situation in light of the changing economic environment is always a good idea.
If you’re worried about your ability to make mortgage repayments, it’s best to flag it early with your lender and discuss their hardship provisions. Since the outbreak of COVID-19, many lenders have taken a more lenient approach due to the widespread disruption of industries and incomes. Depending on your specific circumstances, your lender may be able to put a temporary pause on your mortgage repayments, reduce your payments or renegotiate the terms of your loan.
If you feel your situation is at crisis point, we share further advice in the article how to deal with a financial crisis.
Get in touch with Financial Spectrum today for more information
If you’re concerned about the impact of rising interest rates on your personal financial strategy, feel free to get in touch and we’ll make time to chat. It’s better seek help sooner rather than later before your problems get bigger. Taking action will help you to feel more in control of your situation and improve your mental health too.