Three quarters of borrowers have been preparing for higher home loans

With the Reserve Bank of Australia’s (RBA) interest rate hike looming this month–and several more times expected through the year—a large number of borrowers are taking steps to build up their saving buffers.  

Recent research by Mozo has found that 76% of borrowers have been preparing for the inevitable interest rate hikes. About 29% of borrowers are stashing extra money into their savings, 24% are putting spare change into offset accounts, and 11% have been cutting their discretionary spending.

“There’s no doubt that many home loan customers will be sweating on another rate rise today, but the good news is many people have been preparing their finances by setting up offset accounts, building up their savings or cutting back on spending,” says Mozo spokesperson Tom Godfrey.

This comes as no surprise since a home loan interest rate hike comes with higher mortgage repayments. 

Our research has shown that if the cash rate goes up by 40 basis points (0.40%), then homeowners playing off a $750,000 home loan over 25 years will see an extra $160 added to their monthly repayments. 

While $160 might not look like much, that’s an extra $1,920 a year. That’s the cost of about three months' worth of groceries, two months of car repayments, or a month’s worth of childcare costs. It’s quite a bit of money that you’ll no longer have access to annually. 

If you haven’t prepared for the rate hike, below are some tips on below are some tips for safeguarding your finances.

Tips on handling an interest rate increase

The RBA cash rate increase doesn’t have to be scary. Quite frankly, it's part of the natural economic cycle of a country. And it's not like there is nothing you can do to deal with it. 

Here are three tips to consider when preparing for the interest rate hike.

• Stress test your capability to make higher mortgage repayments. You can use Mozo’s repayment calculator to determine how much your monthly payments will be as the rate increases. 
  
• Get an offset account. Look for home loans that offer offset accounts. You could reduce your interest rate payments by putting your salary into an offset account. 
  
• Find a better deal by comparing rates. Consider negotiating for a better deal with your current lender or switching. Being with a lender doesn’t have to be like a marriage.

“Even with home loan rates steadily increasing, it pays to compare and make sure you’re getting the best deal possible,” says Godfrey.

Check out Mozo's home loan refinance page to learn more about switching your home loan. Alternatively, go to our rate change tracker for more information on interest rate changes.