November 08, 2017
In fact, many economists believe we could see rates rise within the next 12 months. Rising funding costs are currently putting pressure on Australia’s lenders, forcing many of our financial institutions to consider lifting their home loan interest rates.
When this happens, the data from Digital Finance Analytics would suggest that up to 20% of borrowers will be adversely impacted and unable to meet their debt obligations.
While that is a scary thought, the reality is somewhat different.
Many borrowers wrongly believe that one or two rate rises will increase their mortgage repayments by so much that they will no longer be able to afford their repayments.
But, given that rates are so low, one or two rate rises will not cause a borrower’s monthly mortgage repayments to skyrocket.
For example, say you have a $500,000 home loan with a 4% P&I interest rate, your monthly mortgage repayments would be $2387.
Should the interest rate be increased to 4.25%, your monthly repayment would increase to $2459 – that is an extra $72 a month or $18 a week.
As you can see, the difference is not significant enough for you to be too concerned about your ability to pay off your mortgage.
However, if you are, you should make time to speak to your mortgage broker who can walk you through your options and assess your financing capabilities.
One of the tactics you can consider is fixing part or all of your home loan, which will mean your monthly repayments will remain the same for a specific number of years.
By fixing part or all of your mortgage, you can have some surety around the fact that your rates will not increase and your payments won’t change during the period of the fixed term.
Another strategy is to refinance your home loan and switch to another lender with a sharper interest rate than your current provider.
Now is the ideal time to take steps to review your mortgage and make sure it is working for you now and in the future.