Research conducted by Digital Finance Analytics1has found 1 in 5 Australian homeowners will struggle financially if interest rates rise by as little as 0.5%.
Looking ahead, it is fair to assume that interest rates will rise, as they are sitting at record lows at present.
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.
It is worth understanding a little of the finance jargon. A basis point is 0.01%. Since July 2009 the RBA has only raised or lowered its official rate by 25 basis points at a time, (except for one occasion in May 2012 where it decreased by 50 basis points), if it has moved at all.
While any increase can be a little scary, the reality is not too overwhelming.
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 4.50%, your monthly repayment would increase to $2533 – that is an extra $146 a month or $34 a week.
If this difference is concerning to you, please give us a call. You have options.
One tactic is to consider fixing part or all of your home loan, which will mean your monthly repayments will remain the same for a specific number of years.
Another strategy may be 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.
At Mortgage Choice in Mudgeeraba we will work with you to ensure you have the best home loan for your needs and situation. Call today on 5559 2563 or drop in and see us our Mudgeeraba office is located only 5 minutes from Robina Town Centre.