Are you prepared for an interest rate rise?
While Aussie mortgage holders have enjoyed low interest rates for several years now, the party might soon be over.
The Reserve Bank of Australia revealed in the July minutes of its monetary policy meeting that it considered the neutral cash rate to be 3.5%, a two-percentage point increase over the current record low cash rate of 1.5%.
This means Australians should potentially brace themselves for rate hikes soon.
Here are some suggestions to prepare for a rate rise:
- Crunch the numbers
Ask yourself how many rate rises would impact your money goals such as renovations and holidays. Online calculators can help you crunch the numbers.
- Shop around for a better deal
If your home loan isn’t charging a competitive rate now, you’ll be left even more out of pocket if rates climb higher.
- Consider locking in a fixed-rate
It’s worth thinking about locking in a fixed-rate loan. Look for a fixed loan that allows extra repayments so you can reduce the balance sooner.
- Make additional repayments now
Making extra repayments or paying a lump sum while rates are still low, helps pay off the loan sooner and minimises the impact of possible future rate rises. Loans with offset or redraw facilities also provide you the peace of mind to access that extra money, if you need.
- Pay off other debt
If interest rates head north, expect to pay more on personal loans and credit cards. If you have an outstanding credit card balance, try chiselling away at the debt today.
Source: Your Mortgage
