Wednesday 04 April 2018
Despite the Reserve Bank of Australia (RBA) choosing to keep the cash rate on hold for the 20th straight month this week, the general consensus is that a rate rise is likely to occur at some point this year - but what is the best way to prepare?
With no rise to the official cash rate in seven years, Australian borrowers have enjoyed record low interest rates, but this could be set to change by the time the year comes to a close.
It was only midway through last year that the RBA put homeowners on notice by stating that the “new normal cash rate” was actually 3.50% - a full eight rate rises from the 1.50% the cash rate is currently held at.
What this means for the everyday Australian with a mortgage is that their home loan rates could rise quickly when the RBA does eventually feel comfortable hiking the cash rate.
And according to Mozo Product Data Manager, Peter Marshall, that could certainly be within the next year.
“With the RBA expected to consider lifting rates in the next year or so, and offshore funding costs increasing, it’s likely that variable home loan rates will move up rather than down over the long term,” said Marshall.
So to help you prepare, we’ve put together four top tips to negotiating a home loan rate rise in the near future.
Making small adjustments to your household budget in preparation for a rate rise is the best way to see just how you would cope if your variable home loan rate does rise. Simply use our home loan rate change calculator to see what your monthly mortgage repayments would look like with a 0.25%, 0.50% and 0.75% rate rise and road test your new monthly repayments by making additional home loan repayments if your current loan allows it.
Record low interest rates have seen savings rates dwindle over the past couple of years with very few Australian banks now offering rates in excess of 3.00%, but that doesn’t mean you should stop saving. In fact, there are still a range of good-value savings account on the market, particularly if you’re able to meet ongoing bonus conditions. We’d recommend you start your search for a generous savings rate using the recently-released Mozo Experts Choice Awards for savings accounts and term deposits, so that your rainy day fund is primed and ready to go should you need it.
Another option is to put your extra pennies into an offset account, which will count against the principal amount of your home loan meaning that you’ll pay less interest over the life of the loan.
Reviewing your home loan is a great way to find out if you’re still getting a competitive deal. If you’re not, don’t be afraid to contact your provider to haggle your way to a better rate, or even a waived service fee and if you’re still not satisfied with what is on offer, maybe consider refinancing to a better deal on the market.
Not quite sure how to go about this? Check out a range of useful refinancing guides.
A bump in the cash rate will likely see variable home loan rates rise, which means now could be the ideal time to secure a competitive fixed rate for part, if not all, of your home loan. Fixed rate home loans are a great option for homeowners who enjoy knowing exactly what their monthly repayments will be over the next 1-10 years, making them perfect for the family budget. And if you’d like to hedge your bets, a range of home loan providers will give you the option to split your home loan so that part is being paid at a fixed rate and the rest at a variable rate.
You can find a range of popular fixed rate deals on the market right now or alternatively, head to the perfect starting point when it comes to shopping around for a new home loan, our recently-released Mozo Experts Choice Awards to view a range of award-winning loans available right now.Home loan tips