With interest rates on the rise, many homeowners are feeling the pressure on their finances. Over the previous two years, we have enjoyed ultra-low interest rates. As we haven’t had a cash rate hike since November 2010, these increases may be scary, particularly for new borrowers, however, the current cash rate is nothing extraordinary.
That being said, it’s understandable if you’re starting to feel the squeeze. It’s important to be prepared by taking proactive steps now, so you can better manage your finances and be ready for any future rate hikes.
In this blog, we’ll be sharing five tips to help you navigate interest rate rises and manage your mortgage payments effectively. Whether you’re a new borrower or a seasoned homeowner, these tips will help you stay on top of your finances and prepare for any future rate hikes.
Start Building a Buffer
It is highly likely that the interest rates will continue to rise in the coming months.
Both Deutsche Bank and NAB have lifted their forecast estimate for the cash rate to peak at 4.1%.
To prepare for these changes, it’s advisable to start building up a buffer now if it’s possible for you.
This could include putting extra money into an offset account, redraw facility, or savings account, which is often linked to your mortgage and easy to access.
By taking this step, you will have a safety net to fall back on if your mortgage payments continue to increase due to rising interest rates.
Refinance your home loan
Refinancing your home loan is an effective way to potentially get a better rate, even in a rising interest rate environment.
For instance, if you refinance your variable rate home loan from 5.50% to 5%, you could still save money even if interest rates increase by 0.50% next month.
If you choose not to refinance, your interest rate could go up to 6%, which is a 0.5% difference that would remain for all upcoming rate rises as long as banks follow the RBA’s lead.
Consolidating multiple loans, such as car or personal loans, into your mortgage is another option to consider to reduce your monthly expenses. While it may increase the amount of interest you pay over the life of the loans, it could provide cash flow relief now.
Similarly, extending the term of your mortgage through refinancing could help lower your monthly repayments, but it may increase the amount of interest paid over the loan’s lifetime. It’s important to weigh the pros and cons and determine what works best for your financial situation.
Reduce nonessential expenses
If you’re feeling uneasy about managing the potential impact of rising interest rates on your finances, it might be a good idea to take a closer look at your expenses. By reassessing and making some changes, you could alleviate some of the pressure and have a better control of your budget.
Subscription services, such as Stan, Netflix, Spotify, and Amazon, provided a great source of entertainment during lockdowns, but if you’ve forgotten to cancel them, they could be costing you more than you realise. On average, Australian households spend $55 per month on entertainment subscriptions alone.
Another area which you could cut down expenses on are takeaway coffees. Six cups of takeaway coffee per week can cost about $27, which equates to $120 per month. Instead, consider investing in a home coffee machine to make barista-quality coffee for a fraction of the cost, ranging from $30-$70 per month.
While it’s great to indulge in takeaway dinners occasionally, it’s essential to be mindful of the cost. Frequent ordering from Uber Eats, Menulog and DoorDash will add up quickly. In fact, Australians are spending an average of $41.50 per week on these services. You can find fun and yummy recipes online inspired by your favourite take out dishes to cook at home. It is not only cost-effective but could also lead to having leftovers, giving you two meals for the price of one!
Take the time to shop around
It’s always worth taking the time to shop around and reassess your expenses.
One great place to start is with your weekly food bill. Consider checking out Aldi, which was recently found to be the cheapest grocery store in Australia. Alternatively, doing your grocery shopping online can also lead to savings, with the average Australian family saving $114 a month by making the switch.
But it’s not just your groceries that you can save on. Car insurance, home insurance, utilities, your phone bill, and your internet bill are all expenses that you can often find a better deal on by shopping around.
Taking the time to compare prices and make some phone calls – might surprise you at how much you could save!
We’re here to help
If you have any concerns regarding the rising interest rates, or managing your mortgage repayments, come in and have a chat with one of our experienced brokers so we can explore what options are right for you!
To book an appointment email us at enquiries@dominionfinance.com.au or call us at 6162 2740.
