by Jye Smith
The landscape has really changed over the past 6 months with respect to the cost of living and interest rate rises.
Fuel prices are due to increase again at the end of September as the fuel tax excise imposed 6 months ago is due to finish. Weather events and supply chain issues have played havoc with the cost (and availability) of goods like groceries. Utilities like electricity and gas for example seem to be more expensive, and interest rates have gone up every month since May until now.
The Impact Of Rising Rates
The Reserve Bank of Australia (RBA) has increased the cash rate from the record low of .10% to 2.35%, which is an increase of 2.25%. This is the ‘lever’ that the RBA pulls to assist in controlling runaway inflation and house prices amongst other things. The cost of funds for the banks are higher and so naturally they are passing these costs onto customers. The RBA pulls this ‘lever’ to:
- Reduce loan serviceability and in turn how much credit can be borrowed, which then reduces how much the population can buy property for, lowering the house prices which we are already seeing.
- Increased loan rates in turn increase the repayments on existing loans, reducing the excess cash households must spend in the economy, which then reduces inflation. By now you would have received multiple letters from your lender stating that your interest rate and repayments have gone up. Or, you may have spoken to someone who is looking to get into the market but can no longer borrow what they could 5 months ago, reducing how much they can purchase a home for.
The table below explains what the interest rate rise has done to a family’s average mortgage with the 2.25% increase on a 30-year home loan:
|Rate Increase since May
|Increase in Repayments
|$716 per month
|$882 per month
|$1,103 per month.
It takes time for the increase in rates to flow on so it is unclear as to when inflation will ease. People are starting to feel the squeeze of these rates going up in such a sharp fashion. However, there are things we can do to help with this through some sound advice, looking for a better deal and restructuring your debt to give you more cashflow.
Doing A Home Loan Health Check
- This can be for any type of loan you have, residential, commercial, or personal debt.
- You may have been with a lender for some time and not looked for a better rate and therefore can be paying a higher rate than many others in the marketplace.
You may be on a higher variable rate than you need to be. We have been helping clients by reducing their loan interest rates by up to a whopping 1.5%. So this begs the question are you paying more than you should be?
The table below shows how much extra you could be paying due to being ‘loyal’ to your current lender or by not having time to shop around yourself.
|.05% too much
|1% too much
|1.5% too much
|$139 per month
|$288 per month
|$439 per month
|$227 per month
|$461 per month
|$703 per month
|$284 per month
|$577 per month
|$878 per month
Lenders also have up to $5,000 cash back for refinancing depending on your loan amount, as an incentive to use them as a lender.
Consolidating Personal Debt
Another way we can ease the burden is to restructure any personal debt you might have through your home loan refinance. Facilities like credit cards, personal loans and private debts carry higher repayments due to higher interest rates, shorter loan terms and compounding interest. This can make it difficult to get ahead.
Combining these debts into a single loan at a lower rate can make them easier to pay back. For instance, if you are paying $300 a month off a personal loan, you can roll this into your mortgage where the repayments are significantly less and in turn the $300 a month can continue to be paid into these facilities. As the rate is lower, it will get paid back quicker. One repayment over multiple debts is also much easier to manage and will assist you to focus on paying it back.
These are just a couple of ways we can have a quick win, but everyone’s situation is different.
How We Can Help
At Lambourne Partners we have a dedicated Finance broking division that can sit down with you to understand your goals, needs and aspirations to help you ease these pressures, buy a property, or discuss anything else finance related. Whatever your situation, our Finance team will take care of all the bank dealings to help you get ahead in these tougher times.
Our service is at no charge to you, and we can meet face to face or by video at a time that suits you. To get in touch, contact us below or call (02) 4969 6600. We would love to see what we can do to help you.