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23 November, 2022
Rising home loan rates
First Financial Team
You’ve probably heard the news about rising home loan rates and inflation. If you have a home loan or investment loan, you’re probably also watching the movements of the Reserve Bank closely.
Chances are, we are going to see some more interest rate rises in the foreseeable future.
So how do you deal with rising home loan rates?
Below are some points you can discuss with your financial adviser.
Do some sums
Before you get yourself in knots about inflationary pressures, interest rate rises and the well-known fact that wage growth isn’t keeping pace, take some time to determine what your current financial situation is.
Do some simple calculations to determine your incoming money and your standard expenses.
Now, project how you’ll fare if home loan rate rises are to continue.
You can use this handy mortgage calculator to run some numbers.
EXAMPLE:
If you have a $500,000 loan and you have been paying 3%, your fortnightly repayments are likely around $1094 a fortnight.
If the interest rate on this home loan was to increase to 5%, you’d be up for $1349 a fortnight in repayments, as a start, without including any increase in fees that might also occur.
Can you still afford your home loan repayments at this projected higher rate?
Take stock of debt
Home loan repayments are not the only costs associated with home ownership, and many people currently feeling the pinch have other debts they’re concerned about.
How are your debts stacking up?
Do you have a plan for clearing them to reduce the overall financial pressure?
Have you got some spending habits that need reforming?
Have you discussed with your financial adviser the importance of having an emergency fund?
If you feel burdened by your debt, there are financial counsellors that can help you to manage your debt situation as part of The National Debt Helpline – a free service.
Offset account it
An offset account is normally available to those with a variable home loan.
Simply having money sitting in the offset account (which you can still make regular transactions out of) can impact how much interest you are paying on your home loan.
Discuss your offset account capabilities with your home loan provider to determine if you can access this tool.
Renegotiate your rate
It can feel like a tedious process, but home loans are not a “set and forget” situation and the current home loan rates on the market vary widely.
Take the time to make sure you are getting the best deal with the lowest rate on your home loan and investment loans.
Your financial adviser can assist you to compare home loan rates to ensure you’re getting the best deal for your personal situation.
Tighten your belt
Be honest, are you spending more than you earn?
Sometimes the simplest way to meet mortgage repayments more comfortably is to cut out excess spending.
Consult your credit card statement or household budget to figure out where you can trim some expenses.
Reducing subscriptions, selling unused gym memberships, and cutting out bad habit splurges can be a good start, and coupled with renegotiating things like your electricity and insurance expenses to find a better deal if possible.
If you’re looking for other ways to streamline your finances, ask your financial adviser about financial planning for life events.
Pay extra now
A good strategy to prepare yourself for potential increases in the cost of your home loan repayments is to make as many extra payments on your loan as you comfortably can, now.
Some choose to begin paying the higher amount on repayments well before the new interest rate is set, to adjust their spending levels to suit.
Redirecting tax return payments, end-of-year bonuses or other unexpected windfalls into your loan during high-interest rate periods can also help to build a buffer for tougher times.
Be prepared, not scared
It’s easy to get caught up in the doom and gloom of the headlines and stress out about mortgages, interest rates and home loans.
But if you have taken a measured approach to your asset accumulation and take steps to prepare yourself for increased costs, there is no reason to panic.
At First Financial, we are a boutique, client-centric firm – which means the relationships we share with you are intimate, valuable, and engaging.
We help to build a portfolio that clearly aligns with your principles, rather than pushing branded products.
If you wish to discuss your path to wealth management with a trusted professional, contact our team of advisers.
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