With the RBA tipped to start increasing the cash rate from June, this is what homeowners and credit cardholders need to do now to get ahead.
“I don’t think anyone at the beginning of the pandemic would have predicted we’d be in a position now around the world where inflation is picking up so dramatically,” she told Senate estimates earlier in April.
If the RBA hiked the cash rate by 0.15 percentage points in June, an owner-occupier with a $2 million loan paying the average variable rate of 2.92 per cent would see their repayments climb $155 a month, according to RateCity analysis. If the cash rate then rose to 2 per cent by June 2023, as per Westpac’s scenario, that borrower would be looking at a $2035 increase a month.
“The RBA is vigorously ringing the warning bell that rate hikes are coming. While governor Philip Lowe has almost certainly ruled out a rate hike in May, people should treat June as a live possibility,” she adds.New borrowers are keenly aware that more expensive payments are coming their way.Tyron Chappell is pleased to have entered the market while rates are still at record lows but is concerned about rate rises.
“It’s a risk that we’re willing to take, that we will be able to make those repayments, but it’s definitely an underlying concern.”More broadly, however, Chappell is pleased to have been able to purchase a home suitable for a growing family while rates are still at record lows.Rate rises are looking fairly close to certain, with Tindall advising borrowers that now’s the time to “start tightening the belt” – in particular, borrowers with sizeable mortgages.
“Rather than being at the mercy of the RBA, you could potentially give yourself 10 rate cuts today,” she says.Pedersen-McKinnon said this is a “massive” mistake people make, and it can mean that even if borrowers score a cheaper deal, over the long term they may ultimately end up paying more on interest.Be strategic about the end of your fixed rate
“It could still be advantageous to fix half your mortgage. I only ever advocate fixing half because you can’t usually pay extra on a fixed rate portion of a loan, and you usually can’t have an offset account, which is, in fact, the smartest way to pay it off.”If you have the means to make extra repayments now, it will soften the financial hit when rates do rise.
While it’s “often terrifying”, asking for a pay rise can be a straightforward and fairly immediate way to alleviate some financial pressure, Tindall says. “Getting rid of credit card debt isn’t easy, but it’s worth kicking the habit now,” Tindall says. “Soaring inflation has pushed some Australians to reach for their credit card to cover these costs. Credit card debt accruing interest has risen for four months in a row – a sign some Australians are struggling to make ends meet.”