Hold on Tight: 4 Tips to Handle Rising Interest Rates

Rising inflation and runaway rate increases are hitting our pockets where it hurts. That means mortgage repayments are going up too. With many Aussies locked into loans with variable rates, hefty hikes mean shelling out more money quickly. It’s a stressful situation for many homeowners who are dreading the 2023 forecast.  

So what does the horizon look like? We’re likely not finished yet. In fact, there could be more surprises looming ahead. Experts are anticipating at least one more rise to the official cash rate in the near future. So how will it impact owners and the national economy?

Mortgage stress is on the rise. As more Aussies get closer to spending 30% of their pre-tax income on home loans, homeowners are feeling the squeeze. Particularly for variable home loans, these owners are impacted the hardest and meeting financial obligations is getting tougher.

Owners with fixed-rate mortgages expiring soon are also at risk with the current interest rates. How many people is that? Well according to the Australian Bureau of Statistics there’s $158 billion in fixed-rate mortgages approaching expiration by the end of 2023. 

How high will it go? While the Reserve Bank of Australia (RBA) increased the official cash rate to 3.10% in early December 2022, rumblings of more are rising. While everyone is wondering where it will land, some signs from both Westpac and ANZ forecast 3.85% by May this year. 

How we got here. In case you missed the action, in May 2022 the RBA launched into the first of an eight-part series of successive cash rate rises. The bold moves to fight rising inflation have seen the cash rate rise by a full three percentage points.

Staving off inflation. “There has been a substantial cumulative increase in interest rates since May,” explained RBA Governor Philip Lowe after the latest rate rise in December. “This has been necessary to ensure that the current period of high inflation is only temporary. High inflation damages our economy and makes life more difficult for people. The Board’s priority is to re-establish low inflation and return inflation to 2–3% over time,” he added.

Avoiding chaos and a recession. While the RBA says avoiding a recession in 2023 is a narrow path, experts predict cash rates will stabilise this year. Meanwhile, a shortage of housing stock and tightening rental markets will slow the property boom without necessarily stalling it entirely, which would cause an even bigger economic crisis.

Top 4 tips to stay out of the red.

Rising interest rates are a hot topic and nearly everyone is affected – from homeowners to renters. So here are some tips to stay afloat.

1. Be proactive with your home loan. While refinancing might sound tempting, the reality is it’s sometimes harder than it looks. There are pros and cons to refinancing, as well as certain drawbacks. While there’s plenty of micro lenders offering lower rates, they don’t always offer the same services as a traditional bank.

So figure out what you don’t know and use it to your advantage! Start shopping around to see if you can find a better rate, or use that intel to negotiate with your existing lender. Don’t be afraid to pick up the phone and ask for a better rate.

2. Max out your offset account. If you’ve got an offset account and it’s not filling up, it’s time to get to work. Start loading it up as much as you can. It’s one of the simplest ways to save interest and keep some extra cash available for when you need it.

With dozens of offset accounts on the market, shop around to get the best flexibility. Some lenders allow you to offset 100% of the loan, so shop around and make sure you’re getting the best value.

3. Revive your savings account. Once you’ve tapped out that offset account, the next smart move is to energise your old savings account. When the cash rate hit and sustained record lows, using that dusty, low-yield savings bucket didn’t bring much reward.

However, now that the cash rate is rising, it’s time to revisit the old workhorse and take advantage. Want greater returns? No problem, now is the time to start shopping around for higher-yielding term deposits.

4. Seek guidance from an expert. Money issues are no laughing matter, so why face these turbulent times alone? Making sense of supply chain issues, inflation, rising rates, and recession rumours can be confusing. Thankfully our low unemployment rate and hot property market will keep us in a good position to stave off an economic downturn for now.

While there’s no need to panic in the changing climate, being prepared always helps. Make sure you’ve got the right people in your corner to weather the storm. Expert financial advice can make a world of difference in keeping you safe and planning ahead for the short and long-term future. 

If you’re curious to know how rising interest rates might impact you, reach out to Angus to explore your own financial situation.