With housing prices soaring, and mortgages growing, have you considered what may happen when interest rates increase? This article discusses how just a small increase in interest rates can impact your budget and what you can do to prepare yourself financially.
With inflationary pressures, in addition to possible interest rate increases, you could find yourself amongst a growing number of Australians struggling to meet their home repayments.
Households in financial stress is increasing. There are some simple effective steps you can take if you are concerned about your financial position. As always, start with understanding where your money comes (income) and goes (expenses), by drafting or updating your budget.
If you’ve tried and failed to create a meaningful budget, speak with your financial planner as some very simple, cheap, and clever software programs can help you get one in place.
Look for costs you can reduce, or better still, do without entirely. Downsizing to one car in the family rather than two, for example, is estimated to save between $8,178 for a light car to just over $20,000 for an all-terrain vehicle each year in related costs1. These savings could be re-directed to help pay off your mortgage.
When was the last time you reviewed your mortgage? You could speak with a mortgage broker to determine whether there are better and cheaper home loans on the market that you can take advantage of. Remember every dollar of interest you save, means an extra dollar reducing the total size of your mortgage
If interest rates do increase and you can no longer meet your monthly repayments, it’s better to be proactive and speak to your bank or home loan provider as soon as you become aware that there may be a problem and ask for their help to find a way forward.
There may be some simple steps you can take such as consolidating expensive credit card debts or personal loans into your low-cost home loan to reduce your overall repayments.
The most important thing to keep in mind is to not wait until you’ve fallen behind on your mortgage repayments. You will always be better off financially if you take control of the situation rather than wait until the bank steps in and sorts the situation for you.
The information provided herein is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation, and needs, and it is important for you to consider these matters and to seek appropriate legal, tax and financial advice.
- https://www.datocms-assets.com/49357/1626740597-2020-vehicle-running-costs-v2.pdf (RACT Report 2020) ↩︎
