With a day since the dust has settled, the true measure of the back to back, 50 basis point interest rate rise is being assessed. With some savers looking forward to higher interest rates on savings accounts, most borrowers will see a noticeable nudge up in their monthly repayments. The rate rises would amount to around a $133 a month extra on a loan worth $500,000 over 25 years, and $265 a month on a loan worth $1 million – on top of the previous month’s increase. With surging basic good costs such as petrol, groceries, and other CPI indexed items (insurances, tolls, HECS) this is sure to be felt by the wider economy. However some steps can be taken to counter the assumed future rises.
Fixed vs Variables
While fixing your interest rate may alleviate future rises, the consideration is the current gap between fixed and variable. In this regard nobody truly knows whether these larger rises will continue, or that this is to deliberately shock the market and take notice. Other hesitations for fixing can be the limiting of additional repayments and offset accounts, and also possible break fees if you wish to re-finance to another lender within the fixed term. Some of the current best rates, even after the rate rises, are still with new to lender borrowers, and variable rates.
Renegotiate or Re-finance
Sometimes simply contacting your current lender, or ask your broker on your behalf, to see what your current lender may be able to offer. Especially where there may be more equity in the property from either property price rises, and loan pay off, leading to a lower LVR (loan to value) ratio which may entitle to discounted rates. Simply advising the lender you will move if they don’t give a better rate is usually not always the best way, as yourself or your broker can provide more adequate evidence to the current lender for other market rates you may be able to achieve if you switch lenders. When switching lenders to refinance your loan, it does need to be kept in mind there are typically exist fees from lenders, and then legal and settlement fees on most new loans as well.
The so called loyalty tax is where customers can be paying considerably higher on yearly renewals vs new customers. Utilities, phone and internet plans, and insurances, can all creep up each year, or the very least not be the best price available to new customers. What’s more, it’s even easier to switch over providers with generally zero downtime, and very little of your time needed to arrange. This can quite easily save a reasonable amount of money each month, and offset increased in finance and cost of living increases.
With future rate rises expected, arranging a savings plan now, and spending time shopping around will assist to put you in the best position possible for future rises. With the RBA meeting each month to decide upon the cash rate, it will soon be evident if continual rate rises are going to be the norm, and how the cost of living inflationary pressures also continue.