Despite the Reserve Bank of Australia (RBA) choosing to keep the cash rate on hold for the 20th straight month this week, the general consensus is that a rate rise is likely to occur at some point this year – but what is the best way to prepare?
With no rise to the official cash rate in seven years, Australian borrowers have enjoyed record low-interest rates, but this could be set to change by the time the year comes to a close.
It was only midway through last year that the RBA put homeowners on notice by stating that the “new normal cash rate” was actually 3.50% – a full eight rate rises from the 1.50% the cash rate is currently held at.
What this means for the everyday Australian with a mortgage is that their home loan rates could rise quickly when the RBA does eventually feel comfortable hiking the cash rate.
Related: NAB discounts variable rates for new home loan customers
So to help you prepare, we’ve put together four top tips to negotiating a home loan rate rise in the near future.
1. Run a rate rise road test
Making small adjustments to your household budget in preparation for a rate rise is the best way to see just how you would cope if your variable home loan rate does rise. Simply use our home loan rate change calculator to see what your monthly mortgage repayments would look like with a 0.25%, 0.50% and 0.75% rate rise and road test your new monthly repayments by making additional home loan repayments if your current loan allows it.
2. Stash away more in savings
Record low-interest rates have seen savings rates dwindle over the past couple of years with very few Australian banks now offering rates in excess of 3.00%, but that doesn’t mean you should stop saving. In fact, there are still a range of good-value savings account on the market, particularly if you’re able to meet ongoing bonus conditions.
Another option is to put your extra pennies into an offset account, which will count against the principal amount of your home loan meaning that you’ll pay less interest over the life of the loan.
3. Review and maybe, refinance
Reviewing your home loan is a great way to find out if you’re still getting a competitive deal. If you’re not, don’t be afraid to contact your provider to haggle your way to a better rate, or even a waived service fee and if you’re still not satisfied with what is on offer, maybe consider refinancing to a better deal on the market.
Not quite sure how to go about this? Check out a range of useful refinancing guides.
4. Consider fixing your home loan
A bump in the cash rate will likely see variable home loan rates rise, which means now could be the ideal time to secure a competitive fixed rate for a part, if not all, of your home loan. Fixed rate home loans are a great option for homeowners who enjoy knowing exactly what their monthly repayments will be over the next 1-10 years, making them perfect for the family budget. And if you’d like to hedge your bets, a range of home loan providers will give you the option to split your home loan so that part is being paid at a fixed rate and the rest at a variable rate.
Source: Mozo