Interest rates are moving up – but it is not time to panic yet!
As had been expected and predicted, in May the Reserve Bank of Australia (RBA) joined central banks in the US, UK, Europe and Asia and moved our nation into a rising interest rate cycle. Given the last time rates had been increased in Australia was November 2010, this is unfamiliar territory for many borrowers.
Top of mind now is how high will rates go?
Whilst there is no exact numeric answer to that, put simply, inflation is running higher than desired, and interest rates will be increased as far as is necessary to cool inflation.
Any predictions as to future interest rates must be based on assumptions and guesswork as to inflation. Which is significantly influenced not just by events in Australia, but by events overseas, so not easy to predict. However, as a start point, we should all be expecting an increase to our current variable mortgage rates of 1% in the short term.
I strongly encourage you to look at how this will affect you by doing calculations specific to yourself. Take a look at our handy loan repayment calculator here.
In this calculator you can input information specific to your home loan, then increase the interest rate by 1% from what you are currently paying. This will show you how much you can expect your home loan repayments to increase by. Remember to input your loan amount limit including redraw, and loan term remaining.
RBA analysis suggests that “the majority of households are well placed to manage higher loan repayments”. This is due to a combination of many currently paying more than the minimum repayment, and that bank assessments on new borrowers’ ability to repay has been based on rates at 2.5% higher than actual repayment (increased to 3% last October).
Of course, that is a general comment. You need to assess your individual position.
As part of that analysis remember to check the rate you are paying. This is the perfect time to have your loan reviewed, particularly if you did not use a broker. Note more than 66% of home loans in Australia are now processed to the banks via a mortgage broker business such as ours, operating under legal obligation to place ‘customer best interest’ duties over and above bank requirements. No such protection is in place when dealing directly with the bank.
Look at your rate. Variable rates in the market are ranging from close to 2% to over 5%; what are you paying? We are in a rising rate environment, moving up from the lowest rates ever. Your ability to refinance will be lessened by further interest rate increases to come. Now is the time to review and take action if necessary.
For further information call us on (03) 9511 8883 or email support@ifafinance.com.au.