Count costs as rates rise
IT’S been a long time since I’ve looked at the issue of rising home loan interest rates.
The last time the Reserve Bank hiked rates was back in 2010. What many homeowners are facing today is higher home loan repayments resulting from lender-led rate rises.
Westpac and a number of smaller lenders recently announced “out of cycle” rate rises. Predictably, other big banks followed. It means they have jacked up their rates even though the Reserve Bank’s cash rate has remained on hold at 1.5 per cent.
There are ways to navigate rising interest rates. What’s different this time around is that many banks have tightened their lending criteria. So while it’s always worth checking to see that your home loan rate is competitive, the solution may not be as simple as refinancing to a mortgage with a cheaper rate.
On the plus side, vast numbers of Australian homeowners are ahead with their home loan repayments. This can provide a buffer against higher rates.
However, the old saying “watch your pennies and the dollars will take care of themselves” rings true in a climate of interest rate hikes.
Some Australians may struggle to meet their debt commitments — be it a home loan, personal loan or credit card. Coming up with higher repayments is never easy, but one of the best ways to find the extra cash is to revisit your household budget.
A budget has a way of confronting us with how much we have earned, often with very little to show for it. Yet this is exactly what makes budgets so worthwhile — they jolt us into taking better control of our money.
Putting together a sensible, real-life family budget is not hard and you certainly don’t need to account for every last cent. It does mean committing a few hours to work through an initial budget, but after this all that should be required is a bit of finetuning throughout the year.
You may be amazed by what your budget reveals, like how much you are spending on small items that have a way of adding up — such as takeaways or Uber rides. This is all money that you are putting into someone else’s pocket rather than your own, and if you can cut back on these purchases you could probably save yourself hundreds of dollars each year. That could be enough to manage the increase in your home loan repayments without too much impact on your hip pocket or lifestyle. — Paul Clitheroe is Chairman of InvestSMART, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine