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Paul's Insights: Rising Home Loan Interest Rates

Many home owners are facing higher home loan repayments resulting from a lender-led rate rises.
By · 7 Sep 2018
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7 Sep 2018 · 5 min read
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It’s been a long time since I’ve looked at the issue of rising home loan interest rates. The last time the Reserve Bank hiked rates was back in 2010. What many home owners are facing today is higher home loan repayments resulting from lender-led rate rises.

Westpac and a number of smaller lenders recently announced ‘out of cycle’ rate rises. Predictably, other big banks followed. It means they have jacked up their rates even though the Reserve Bank’s cash rate has remained on hold at 1.5%.

There are ways to navigate rising interest rates. What’s different this time around is that many banks have tightened their lending criteria. So while it’s always worth checking to see that your home loan rate is competitive, the solution may not be as simple as refinancing to a mortgage with a cheaper rate.

On the plus side, vast numbers of Australian home owners are ahead with their home loan repayments. This can provide a buffer against higher rates.

However, the old saying ‘watch your pennies and the  dollars will take care of themselves’ rings true in  a climate of interest rate hikes. Some Australians may struggle to meet their debt commitments – be it a home loan, personal loan or credit card. Coming up with higher repayments is never easy but one of the best ways to find the extra cash is to revisit your household budget.

A budget has a way of confronting us with how much we have earned, often with very little to show for it. Yet this is exactly what makes budgets so worthwhile – they jolt us into taking better control of our money.

Putting together a sensible, real-life family budget is not hard and you certainly don’t need to account for every last cent. It does mean committing a few hours to work through an initial budget, but after this all that should be required is a bit of fine-tuning throughout the year.

You may be amazed by what your budget reveals, like how much you are spending on small items that have a way of adding up – such as takeaways or Uber rides. This is all money that you are putting into someone else’s pocket rather than your own, and if you can cut back on these purchases you could probably save yourself hundreds of dollars each year. That could be enough to manage the increase in your home loan repayments without too much impact on your hip pocket or lifestyle.

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Frequently Asked Questions about this Article…

Home loan interest rates are rising because lenders like Westpac and other banks have announced 'out of cycle' rate increases. This means they have raised their rates independently of the Reserve Bank's cash rate, which has remained on hold at 1.5%.

One effective way to manage higher home loan repayments is by revisiting your household budget. By identifying areas where you can cut back, such as reducing spending on takeaways or Uber rides, you can free up extra cash to cover the increased repayments.

Refinancing to a mortgage with a cheaper rate might not be as straightforward as it used to be because many banks have tightened their lending criteria. It's still worth checking if your home loan rate is competitive, but refinancing may not always be the best solution.

Being ahead on your home loan repayments can provide a buffer against rising interest rates. This means you have a financial cushion that can help you manage higher repayments without significantly impacting your budget.

Creating a budget helps you take better control of your money by showing you exactly how much you earn and spend. It can reveal areas where you can cut back, allowing you to allocate more funds towards meeting debt commitments like home loans, personal loans, or credit cards.

Fine-tuning your budget throughout the year ensures it remains realistic and effective. It allows you to adjust for any changes in income or expenses, helping you stay on track with your financial goals and manage any unexpected costs.

Small expenses, such as frequent takeaways or Uber rides, can add up over time and impact your ability to manage rising home loan repayments. By cutting back on these small costs, you can save hundreds of dollars annually, which can be redirected towards covering higher loan repayments.

This saying highlights the importance of being mindful of small expenses, as they can accumulate and affect your overall financial health. In the context of rising interest rates, being cautious with small expenditures can help you save money to better manage increased home loan repayments.