Only way is up for in­ter­est rates, ex­perts warn

Townsville Bulletin - - NEWS - TIM McIN­TYRE

THE PARTY may soon be over for mort­gage hold­ers, with the min­utes of the Re­serve Bank’s July meet­ing hint­ing that eco­nomic sta­bil­ity would be achieved at the “neu­tral real in­ter­est rate” of 3.5 per cent; some 2 per cent higher than the cur­rent his­toric low fig­ure.

This means Aus­tralians should po­ten­tially brace them­selves for eight rate hikes in the near fu­ture, ac­cord­ing to home loan len­der ME.

“It’s been an ex­tra­or­di­nary down­hill run for in­ter­est rates since late 2011, but things can eas­ily go up as they can go down,” ME head of home loans Patrick Nolan said.

Stan­dard vari­able home loan rates cur­rently sit around 5.3 per cent on av­er­age, but this would rise to over 7 per cent should of­fi­cial rates get back up to 3.5 per cent.

This may not mean much to older gen­er­a­tions as the av­er­age vari­able home loan rate be­tween 1959 and now is more than 8 per cent and Baby Boomers would re­mem­ber rates hit­ting such lofty heights as 17 per cent close to 1990; but younger Aus­tralians have been in a low in­ter­est en­vi­ron­ment now for more than four years and the shift may come as a shock.

It is re­quired of banks to en­sure loan ap­pli­cants could ser­vice a mort­gage in the event of a rate rise, but bor­row­ers also need to take re­spon­si­bil­ity, Mr Nolan said, of­fer­ing five tips to pre­pare for a rate rise.

GOES DOWN MUST COME UP “Ask your­self how many rate rises would im­pact your money goals such as ren­o­va­tions and hol­i­days. On­line cal­cu­la­tors can help you crunch the num­bers.” AROUND FOR BET­TER DEALS “If your home loan isn’t charg­ing a com­pet­i­tive rate now, you’ll be left even more out of pocket if rates climb higher.”

FIX­ING “It’s worth think­ing about lock­ing in a fixed- rate loan. Look for a fixed loan that al­lows ex­tra re­pay­ments so you can whit­tle down the bal­ance sooner.”

MORE NOW “Mak­ing ex­tra re­pay­ments or pay­ing a lump sum while rates are still at record lows, 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.”

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.”

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.