What do the recent interest rate rises in Australia mean for your budget?
With the rising cost of living, budgets are tighter than ever. The recent interest rate rises in Australia have exacerbated the issue (with more expected to come) and understandably, some of us may be a little nervous. We spoke to MyBudget Loans Head of Lending to get an idea of Australia’s interest rate rise journey and what Australians can do to prepare.
When will interest rates rise in Australia?
For the first time in over 11 years, Australia’s interest rates have been rising at a consistent rate. According to the Reserve Bank of Australia (RBA), there have been 10 interest rate rises since May 2022, with the most recent by another 25 basis points, totalling at 3.60 per cent.
The RBA also advise that global inflation still remains high, but the curve is beginning to flatten. This means that we may still expect a few more interest rate rises throughout the remainder of 2023, but only time will tell.
In practical terms, how will an interest rate rise likely affect Australians?
With a 3.5% interest rise, that’s $3500 per year for every $100,000 owing on a home loan and according to Canstar, the average (mean) home loan on a newly built house is $569,433. Therefore, a total 3.5% interest rate rise over 12 months would equate to a whopping $20,000 (approximately) more per year than the average Australian newly built home owner had allocated to mortgage repayments in their budget.
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And when you consider this additional cost alongside the rising cost of groceries, petrol and other regular expenses, the picture that’s being painted is certainly becoming bleaker.
Does this make it more difficult for first home owners who took advantage of recent grants?
Not necessarily. However, situations may have changed since purchasing a home (e.g. going from double to single income, starting a family, change in employment, etc.), therefore this may put further strain on their situation if they are beginning to struggle.
Those who opted in for first home owner grants may also have a higher-than-average interest rate. Conducting a home loan health check might be a good way to assess whether you may be in a position to refinance your mortgage to save on interest and find savings.
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What can homeowners do to prepare?
Spring cleaning your finances is a great way to find ways to save money. Creating a checklist and testing new figures in your budget is the perfect way to pre-empt the changes so you’re not stressing later. This is the perfect opportunity to do some budget spring cleaning by ensuring that every dollar is being put to good use.
Things like updating your phone plan, checking your insurances, unsubscribing from services you don’t use anymore, shopping online and planning your meals. All of the little things add up and you may find yourself in a better position once all is said and done. A budget is the best way to proactively tackle interest rate rises and the increased cost of living. There’s no better time to start than right now.
Should people be looking to refinance their mortgages now or after the rise?
It never hurts to shop around and make sure you’re getting the best deal you can get. The earlier you can get a better deal on your mortgage, the quicker you can be saving.
MyBudget Loans on average are able to saveclients $7000 a year by refinancing their home loans and even find opportunities to also refinance credit cards and personal loans.
If you find yourself a little concerned about rising interest rates and worrying about how you’ll be able to navigate through, you’re not alone. Everyone’s financial position is unique and so having a customised budget plan tailored to suit your circumstances makes a world of difference. Our MyBudget team is always looking for ways to help our clients transform their money and their lives and so if you need a helping hand, give us a call on 1300 300 922 or enquire online for a free appointment.
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