5 Ways You Can Absorb Interest Rate Rises
We have seen interest rates bounce back up over the past three months and it is predicted that more increases are to come. If you are starting to worry about your finances, there are a few things you can do.
Check out this Reserve Bank of Australia (RBA) graph. It shows interest rates are currently lower, as of July 2022, than they were prior to May 2019. The current cash rate is nothing extraordinary, although it might come as a shock to newer borrowers, as we previously had not had a cash rate hike since November 2010.
There is no denying that some households are starting to feel the squeeze, and if you put yourself in that category
Consider Implementing Some of These Measures
- Start Building a Buffer
Interest rates will go up over the next few months. Economists from the big four banks are predicting it could increase to anywhere between 2.60% (Commbank) and 3.35% (ANZ) by November.
Therefore, it is important to start planning ahead now, if you can, by building up a buffer. This usually includes putting extra money into an offset account, redraw facility or savings account, that’s attached to your mortgage or easy to access.
- Reduce Expenses
Stan, Netflix, Spotify, Amazon, Audible, Apple TV, Disney, Paramount+, Kayo, Binge… the list goes on. How much do you spend on subscriptions each month?
These subscription services could be costing you a lot more than you realise. The average Australian household spends $55 per month on entertainment subscriptions.
Next on the list is takeaway coffees. Six takeaway coffees a week cost about $27, which is about $120 per month or $240 per month for a couple. Instead, you can brew your own barista quality coffee at home for $30-$70 per month.
There is Uber Eats, Menulog, DoorDash, Deliveroo… if you are making a habit of it then it will really start adding up. And the best part about home-cooked meals is the leftovers for lunch the next day – making it two meals for the price of one.
- Shop Around
A recent study from Choice found that Aldi is the cheapest supermarket. So that is a start when it comes to your weekly food bill, which is going up each month thanks to inflation.
Furthermore, an ING survey found that the average Australian family saves $114 a month by doing their shopping online.
But… it is not just the groceries that you can shop around for a lower price. Car insurance, home insurance, utilities, phone, and internet are all other monthly expenses that you can usually find a better deal on.
If you have not refinanced for a while, there is a decent chance you could get a better rate on your home loan.
But why refinance now if interest rates will just keep rising? Let’s say you refinance your variable rate home loan this month from 3.50% to 3%. Then if the RBA raises the cash rate by 0.50% next month, and your bank follows, your interest rate will then be 3.50%. But if you choose not to refinance and your bank follows the RBA, it will be 4%. This 0.5% gap would remain for all subsequent upcoming interest rate rises, so long as the banks increase their interest rates in line with the RBA.
Another option is to consolidate multiple loans such as car or personal loan into your mortgage to reduce your monthly expenses. It is important to note that if you do this you will pay more in interest on the car and/or personal loan over the lifetime of those loans, but if you need cash flow now, this could be a possible solution.
You can also consider refinancing to extend the term of your home loan, which could help reduce monthly repayments. Again, you will end up paying more interest over the life of the loan, but it can give you more breathing space if you need it.
Frequently Asked Questions
What is the current trend in interest rates?
The article discusses how interest rates have been rising over the past three months and are expected to continue increasing. The Reserve Bank of Australia (RBA) has indicated that rates are currently lower than they were before May 2019, but they are expected to rise.
How can I prepare for upcoming interest rate hikes?
The article suggests building a financial buffer by putting extra money into an offset account, redraw facility, or savings account that's easy to access or attached to your mortgage.
What are some ways to reduce my monthly expenses?
The article recommends cutting down on subscription services like Netflix, Spotify, and takeaway coffees. It also suggests cooking at home to save on food delivery services like Uber Eats and DoorDash.
How can shopping smartly help me manage rising interest rates?
According to a study from Choice, shopping at Aldi can save you money on your weekly food bill. An ING survey also found that online shopping can save the average Australian family $114 a month.
Is refinancing a good option to manage rising interest rates?
Yes, refinancing can help you get a better rate on your home loan, which can be beneficial even if interest rates are rising. The article explains that if you refinance now, you could potentially save on interest payments in the long run.
What should I do if I'm concerned about meeting my home loan repayments?
The article suggests reaching out for professional advice if you're worried about how interest rate rises will affect your ability to meet your home loan repayments. It's important to consult with experts to tailor a plan that suits your financial situation.
Come and Speak to Us
If you are concerned about what is going on with interest rates, inflation and/or how you will meet your home loan repayments, please don’t hesitate to get in touch.
Everyone’s situation is different, and we understand many of the ideas we have listed might not suit your financial or personal situation.
If you are worried about how you will meet your repayments in the months ahead, give us a call. We would love to speak to you and help you work out a plan moving forward.
Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business.
About the Author:
Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilises her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.
Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).
Disclaimer: This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial. r-less normal distribution of letters. making it look like readable English.