Table of Contents
How far will interest rates rise?
Rates have increased by 1.75% in the four months to August 2022, and are expected to increase by a further 1-1.5% by the end of 2022.
What does it mean for my existing home loan?
With the RBA tipped to increase the cash rate several times this year, it’s essential for borrowers to prepare themselves.
The most important question is whether you will be under stress if repayments increase. If the answer is yes, it’s best to be proactive to make sure you are in the safest position. These strategies will give you the best chance of maintaining your current lifestyle in an environment of higher interest rates.
- Get on a lower rate: Ask your lender for a better rate or refinance to a better lender. Your broker can do this for you, at no cost.
- Prepare for the end of your fixed rate: borrowers on a fixed loan should diarise the end of their term and start canvassing their options with their broker at least two months out.
- Get ahead of your repayments, if you can: If you have the means to make extra repayments now, it will soften the financial hit of rising rates.
What does it mean for new borrowers?
As interest rates increase, borrowing power decreases. This means that new borrowers should have a sound understanding of their borrowing power and how it will be impacted by interest rate rises in the coming months.
Your broker will be able to run several scenarios to make sure you are 100% prepared to make an offer on a property.
Why are rates going up?
The main reason for the RBA’s decision to increase its cash rate is to curb the unexpected surge in inflation (5.5% YoY). Causes of this surge include:
- Global supply impacts caused by the pandemic. For example, factories in China have been forced to close their doors for extended periods over the past 2 years, impacting the production of goods across the world.
- Restrictions in the supply of some products as a result of the war in Ukraine. For example, the price of oil has surged as trade embargoes have been placed on Russia, resulting in higher petrol prices in Australia.
- Supply impacts of the devastating floods. For example, prices of fruit and vegetables have surged around the country as crops and supply routes were damaged.
