AS INTEREST RATES RISE, WHAT ARE YOU DOING TO STAY AHEAD OF THE CURVE?
Another month goes by, another cash rate increase from the RBA. The 2022 experience keeps getting better, right?
Following the events of yesterday and the scare-mongering of main stream media, with cost-of-living pressures mounting amongst soaring home prices, groceries, petrol and common necessities we are starting to see that many home owners are now becoming increasingly fearful of future rate hikes.
With a national average home loan size of owner-occupied homes in Australia over $600,000 what exactly does an interest rate rise mean for you?
Say you have a loan rate of 3% currently, and your loan is $600,000 this would make your repayments $2,529.62 per month, but in this example let’s use whole numbers to simplify.
With repayments of $2,530 per month on your home loan, an increase of just one percent to a rate of 4% would be an increase of $335 per month or $4,020 per year.
An increase of 2% to a rate in the 5% vicinity would increase your monthly home loan commitment by $690 per month, or $8,280 per year.
Whilst this might not feel like a “big-thing” it is. Think of the above scenario this way… if you are currently saving $100 to $150 per week in your weekly budget and doing this consistently, then the potential of rate rises listed above would completely wipe out any chance you have of saving money as this equates to $5,200 to $7,800 per year.
What about your backup buffer? That can help right… well you would think so, but with so many Australian’s living week to week, pay-to-pay, many may not have back up buffers in place or the capacity of income to develop backup savings, and whilst this may be true for many who are genuinely struggling, it is not true for all.
For many home owners their first step is to reach out to their mortgage broker and see what the best rate for them is. Your broker will sit with you, compare options and consider what the next course of action would be for your home loan and may even save you a few dollars along the way. ANZ has listed their featured “fixed rate” at 5.49% on their website as of 6th of July 2022. Will a refinance help if rates are higher than what you are currently paying?
Whilst we agree that speaking to your mortgage broker is essential to ensuring that you save interest long-term, it is only a portion of what home owners should be doing.
Ask yourself this… when was the last time you sat down with your significant other and had a conversation around the household budget? Last week? Last month? Never?
Where a mortgage broker can save you a portion of your monthly commitment by seeking the best loan and product for you, they do not provide in-depth advice or guidance on your household budget, and this is where we excel! Our team can help you gain clarity on all your financial decisions and have back-up buffers and plans in the event of any future rate hikes.
Having a clear and well-defined budget gives you peace of mind and allows you to make informed choices around your money. It allows you to identify overspending, develop consistent savings and backup buffers, ditch dodgy providers (power, gas, insurances etc), and help you to understand exactly where your money is going.
One of our recent clients even mentioned on one of our reviews of how necessary a solid budget is in this current hostile world.
Over the years we have had so many discovery meetings with couples who had incomes of $100,000 or more with zero savings in the bank with nothing to fall back on in emergency. Some couples with $200,000 annual income and $1,000 in the bank for “emergencies,” and others with $2,000 in their “fire extinguisher account” because a guy that can’t wear shoes told them this was a safe amount of money to have available. The key is, don’t just save $1,000 and stop – keep going!
It’s flabbergasting that so many Australians who are on higher incomes who have the capacity to develop savings, to develop a budget and actually get ahead in life choose to sit in their bum, watch MAFS, then have no idea why they have no money. If this is you our advice is to turn the TV off and take action as now is not the time to sit on your bum and do nothing. We all know that inaction within itself is a choice, and what you choose to do past this point is up to you.
With 3 RBA cash rate rises in as many months, what is your plan in the event of more?
It is far easier to solve financial woes in the early stages rather than the late stages. Early intervention is the key, even if this is only a conversation for now. A conversation with our team will cost you nothing.
We encourage you to reach out and connect with us. Our discovery meetings are FREE!
What do you choose?
Action, or in-action?
It’s your choice. Choose wisely.