How To Cope With Rising Interest Rates

Interest rates may be rising, but Reserve Bank deputy governor Michele Bullock is confident most borrowers will be able to cope.

One reason for her confidence is that “household balance sheets are in very good shape”, because the average household is ahead on their mortgage and has considerable equity in their home.

Ms Bullock also noted lending standards have increased in recent years, and that, to qualify for loans, borrowers had to prove they could pay “significantly higher” interest rates.

That said, with interest rates almost certain to rise further, it would be wise for households to plan ahead. Here are some expert tips on how to cope with rising interest rates:

1. Pretend your interest rate is 1.50 percentage points higher

Pay difference into an offset account, a redraw facility or a special savings account, so you’re prepared if rates do reach that level

2. Reduce discretionary spending

Holiday domestically rather than internationally, go out less, cook more meals, switch from Ubers to public transport, buy less ‘stuff’ and conduct a review of your subscription services. Any subscription service that you have not used in the past month – scrap it.

3. Increase your Income

Ask for a raise, switch to a higher-paying job, do more hours, start a side hustle.

4. Increase your repayment frequency to fortnightly or weekly.

By increasing your repayment frequency you will actually end up paying slighly more off your home loan each year. The other advantage of doing this is that the interest calculated on your loan each day will be lower. As interest is calculated daily, and charged monthly, by increasing the payment frequency, the interest will be calculated on a lower balance, resulting in less interest charged.

5. Talk to a mortgage broker to review your home loan and consider refinancing

A Mortgage broker can help you negotiate a better interest rate on your home loan.

If you are thinking about reassessing your finances, Australian Loans Group can actively assist you in navigating your current situation.  We offer no obligation consultations and we are confident you will be better off for having dealt with us.