What does the recent interest rate rise in Australia mean for your budget?
With the rising cost of living, budgets are tighter than ever. The seemingly inevitable interest rate rise in Australia is sure to exacerbate the issue and understandably, some of us may be a little nervous. We spoke to MyBudget Loans Head of Lending Cade McMurtrie 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 are on the rise. According to the RBA, there are likely to be further interest rate rises to come in the attempt to flatten the curve of inflation. This has already started to take effect, with the first interest rate rise having taken place on 4th May by 0.25% (with a potential max rise of up to 1% before Christmas). If homeowners begin defaulting on their loans as a result of the first interest rate rise and banks start foreclosing on houses, then that would indicate that the economy can’t afford subsequent increases, so adjustments might have to be made.
The 1% interest rate rise may not seem like something to write an entire article about but Australia hasn’t had a positive interest rate rise since 2011. The reason for the interest rate rises is to counteract the rising inflation.
In practical terms, how will an interest rate rise likely affect Australians?
With a 1% interest rise, that’s $1000 per year for every $100,000 owing on a home loan and according to Canstar, the average (mean) price of a house is $611,000. Therefore, a total 1% interest rate rise over 12 months would equate to a whopping $6,110 more per year than the average Australian home-owner had allocated to mortgage repayments in their budget.
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 option 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?
Refinancing before interest rates rise any more may alleviate some financial pressure. And besides, it never hurts to be prepared and ahead of the game.
MyBudget Loans on average are able o save MyBudget clients $4000 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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