At least one interest rate rise is "inevitable" in the next six months, says the Mortgage & Finance Association of Australia (MFAA), which is urging borrowers to prepare now for upcoming higher mortgage costs.
The Reserve Bank elected to keep the cash rate on hold in October at 4.5%, a move that largely surprised the banking industry and consumers alike.
“A factor for the RBA not raising interest rates in October was the fact that data from the latest consumer price index (CPI) won’t be available until later this month,” says Phil Naylor, CEO, MFAA.
“Although rates are on hold now, there is a likelihood they will rise next month if not in December, so families really should take the time now to prepare for upwards rising rates.”
Naylor recommends that borrowers follow these four simple steps in an effort to reign in their spending and manage the household budget more effectively.
1. Get a health check
How long have you had your mortgage? If it’s more than a couple of years, it might be worthwhile visiting your bank or mortgage broker to make sure your loan is still the best fit for you and your financial situation. “Evaluate opportunities to save money within your home loan contracts, by undertaking a home loan health check,” Naylor advises. It only takes an hour and could save you thousands of dollars in the long run.
2. Negotiate a better deal
Once you’ve reviewed your mortgage, talk to your bank or lender about your options. You may be able to negotiate changes to your existing mortgage, such as an interest rate reduction or eliminating fees, if you switch products or bundle your loans into a professional package. If you’re not happy with the response you get from your lender, don’t be afraid to shop around. “Accredited mortgage brokers can help navigate a range of issues to ensure the most appropriate loan is secured for your individual circumstances and needs,” Naylor says.
3. Monitor your spending
If you haven’t reviewed your budget recently, this is the perfect opportunity to go over it with a fine-toothed comb – especially with Christmas just around the corner. Around the silly season it’s even more important to “monitor your household budget and keep spending in check,” Naylor says, as Christmas is usually the time of year when we over-spend and rack up extra debts on our credit cards. Those debts are going to be even harder to cope with when interest rates eventually do rise, so keep your spending in check now to avoid a credit card hangover in the New Year.
4. Manage your debts
If you have personal loans, credit cards or other debts eating away at your income, create a plan to work at paying them off – and put that plan into action. If you can eliminate your personal debts, any increases in your mortgage repayment won’t bite as hard if and when the RBA does lift interest rates.
It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan