In the last three months of 2022, the RBA increased the cash rate by 25 basis points each month, concluding the year with a 3.10% cash rate. Because of the resilience of the Australian economy, its low unemployment rate, evidence of wage growth picking up and high inflation at 7.8%, the RBA has started to withdraw some of the extraordinary monetary support they put in place to help Australians during the pandemic. The outlook for economic growth in Australia also remains positive despite the ongoing uncertainties about the global economy.
With the rise in the cash rate, the big four banks have passed on the 3% rise from .10% in April 2022 to 3.10% in December 2022 to their borrowers. So what should you be doing today to help you ride through the future rate rises expected this 2023?
1. Call your bank or mortgage broker and request a rate discount
If it’s been a while since you spoke to your bank or mortgage broker, a lot of things have probably happened. First is that your property value has increased, and your loan balance has decreased. With a lower loan balance and a high market value for your home, your loan-to-value ratio has gone down. It is possible that your Loan-to-Value Ratio (LVR) is below 80% or at best 70%. There are lenders that provide you with further rate discounts at 70% LVR. If your current bank is not willing to give you a lower rate, speak to us and we are happy to review your home loan.
2. Cut unnecessary spending
Look into ways you could tighten your spending. How many streaming subscriptions are you on? How often do you eat out? How many cups of coffee do you buy in a day? How often do you intend to travel overseas now that international borders are open?
You should start setting a budget and try to live within your income. The low-interest rate environment we’ve had for years should’ve been an opportunity for you to save. Try not to touch this buffer. There are more rate rises to come which can cut into your budget. Your savings will be your emergency fund when the going gets tough.
Most lenders have a budget planner to help you organise your budget. Just google budget planner calculator. To track your spending, look into mobile phone apps that will help you track your income and expenses.
3. Consider consolidating your debts
If you have multiple credit cards with balances left each month, it means you are merely doing the minimum repayment. Remember that you are charged an annual interest of 20% or more for those credit card balances. Try to consolidate these debts into a personal loan or your home loan. You not only get a better rate, consolidating multiple debts into a single loan reduces the number of payments and interest rates you have to worry about. It reduces the chances of making a late payment since you only have one debt to worry. You’ll also have a better idea of when all of your debt will be paid off.
If you’re a first home buyer wanting to get into the property market, expect your borrowing capacity to reduce. That’s the downside of a rate rise. With further rate rises, the property market will also correct. The growth in property prices in the last 2 years has slowed down. Corelogic recently reported a market slowdown in Sydney and Melbourne. There is now the fear of paying more compared to the fear of missing out in the past. The rate rise may be an opportunity for first-home buyers to get into the property market.
To know more about the pros and cons of debt consolidation, read this blog.
4. Make extra repayments into your offset account or redraw
As early as now while the interest rate is still low, start spending less and putting your surplus savings into an offset account. This will help pay off your home loan faster. It can also be a way to have the emergency funds you may need to counter higher mortgage payments. You can find out more about the difference between offset and redraw accounts here.
Major banks like Westpac are predicting the cash rate to rise to 3.85% by March 2023. With inflation rising to its 33-year high at 7.8%, it is likely that the RBA will raise the cash rate by .25% this February 2023.
With banks passing on the increases in the cash rate to their customers, variable home loan repayments have also gone up.
Like to know more?
Speak to us about reviewing your home loan to ensure you are getting a competitive offer that suits your financial situation and goals. Call us at 0430 144 008 or send us an email at loans@maverickfinance.com.au, or simply leave your contact details and we’ll call you back. You can also book a complimentary meeting with us at calendly.com/maverickfinance.
Maria Papa is a senior property and finance expert specialising in home loans, investment loans, self-employed loans, alt doc loans, car loans, personal loans, and loan protection. She has offices in Sydney, Melbourne, and Manila. If you have questions, you can call Maria at 0430 144 008 or email her at mpapa@maverickfinance.com.au.
Disclaimer: Your full financial situation will need to be reviewed prior to acceptance of any offer or product.