With the official Reserve Bank cash rate remaining at record lows, it may come as a surprise when home loan experts warn of impending interest rate rises.
Former RBA board member John Edwards has warned that mortgage-holders could expect up to eight interest rate hikes over the next 2 years.
With wage and economic growth picking up, it’s only a matter of time before the warning becomes a reality.
So what does this mean you should do?
Well, it’s important not to panic. While the RBA has always warned of the potential for rates to rise, the current low-rate climate presents a good opportunity to pay off as much of your mortgage as possible.
Making extra repayments on your mortgage while rates are low is a great way to get ahead. It means when rates rise, you will be charged less interest because the principal owing on the loan has been reduced.
Also, when rates do rise you are already in the habit of paying off more than your minimum repayment amount. This will make it easier to adjust to higher rates.
So, what should you do now?
We recommend you do these 2 things by the end of the year:
1. Call us to review your current home loan and interest rate. With so much competition by banks to offer the best rate, there’s probably a better rate out there for you. Even if the saving on the interest rate isn’t significant, many banks are offering a ‘refinance rebate’, with up to $2,000 offered as a cash back incentive for switching.
2. Check your budget. See if you can reduce your expenses in some non-essential areas like entertainment. Instead, use that money to make extra repayments on your loan. Extra repayments of $200 per month on a $300,000 loan can save you up to $47,000 in interest and you could pay off your loan 6 years earlier.