Federal Reserve Governor Michelle Bullock will announce the future of the country’s interest rates, with expectations that mortgages will cost more. Photo: Martin Ollman.
Homeowners in Australia could be on track to shell out more than $100 extra a month, and more than $1200 a year, to secure their home loan by the end of today.
But with the right approach, and some forward planning, a rate hike could mean a trip to Bunnings rather than financial pain ahead – with economists and bankers revealing how they stay ahead of the Reserve Bank and its rate calls, and how you can be in a situation where it’s just an excuse to go to Bunnings.
The advice comes as the RBA is widely tipped to raise the national interest rate by 0.25 percent.
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For an average national loan of $694,000, according to the Australian Bureau of Statistics, that means repayments will increase from $4233 a month to $4337.
NAB’s head of Australia Economics Gareth Spence said his first step after the rate hike would be to “pay off my mortgage as soon as possible”.
“Many people don’t realize that it is possible to link multiple offset accounts to reduce the interest charge,” said Mr Spence.
“Small things like this can help soften the impact of rate hikes, without requiring changes in spending.”
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NAB’s chief economist, Gareth Spence, advised landlords to keep a close eye on their mortgages and how they use things like non-performing accounts to keep them under control.
Commonwealth Bank Everyday Banking general manager, Monica Wegner, said it’s important to be proactive, and by using money management tools in banking apps you can spot behaviors that can harm your ability to cope with the hike.
They can also help develop good financial habits, and help you build toward savings goals and other important financial steps by breaking them down into smaller steps.
AMP Capital chief economist Shane Oliver said he was not fully convinced that rates would rise, and other factors in inflation did not warrant such a decision – although he noted that the RBA had suggested they could rise in their last comments.
His advice to borrowers was to plan ahead.
AMP’s Head of Investments and Chief Economist Dr Shane Oliver’s top tip for beating a Reserve Bank rate hike is to tighten your belts before it happens. Photo: NewsWire / John Appleyard.
“My plan was to pay off the loan as quickly as possible,” said Mr Oliver.
“I can put everything into it knowing that once you get the balance, after a year, you have more freedom to accept price increases.
“Chuck any loan and remember that the less you get, the easier it will be in the years to come.”
Your mortgage balance is also a good place to put any bonuses or unexpected windfalls.
Although he notes that you can look to adjust your interest rate, at this stage “the horse may bolt”.
Ray White chief economist Nerida Conisbee said since she traded Melbourne debt in Sydney she had never thought more about her repayments than today.
The Ray White Group’s chief economist, Nerida Conisbee, advises on anything from limiting your clothing budget to doing a cost-benefit analysis before committing to a big purchase.
The result is that she second-guesses her clothing budget, but falls back on some of the behaviors she learned from her father growing up.
“Dad was very frugal,” Ms. Conisbee said.
“He does a cost-benefit analysis before he buys a bread maker when we’re kids. Some of that behavior is gone, so I just pass that on a little bit.”
Independent economist Nicki Hutley, who supports the Climate Council, said she had experienced a mortgage crisis when rates were around 20 per cent – and the biggest thing she learned was to ignore what your bank is willing to lend you.
“Leave yourself a bigger buffer zone,” said Ms. Hutley.
His children have been advised to continue paying the loan at the levels they were in before the rate reduction started last year, and for those who did, the increase in rates will mean that they no longer have the same amount of debt they could have.
Independent economist Nicki Hutley says that home buyers should ignore what their bank will lend them but focus on what they know they are comfortable paying as a loan.
Likewise, one of the best things you can do, he said, is to keep looking for department store specials even when times are good and prices are down.
“Money should not be wasted, and the more you save, the better,” he said.
In the end, Ms Hutley said it was worth keeping the view that with where house prices are today, you are doing well to get to the point where you can’t afford a mortgage.
“Over time, you’re going to raise prices and get paid more,” he said.
“And as long as you keep your job, there are always things you can do to tighten your belt.”
The Housing Industry Association’s chief economist, Tim Reardon, said the best thing he had done was to pay off his mortgage before he turned 40, but he was still concerned about the impact of rising rates on his side as a gin distillery supporter.
HIA chief economist Tim Reardon says the best way to beat rate rises is to save – and find a like-minded partner. Photo: Tertius Pickard.
“When prices go up, there’s less money that people can spend on what, to me, is luxury,” Mr Reardon said.
For that reason, his main advice was that interest rate rises started when you bought a home – and for those who got it right, the price rise could mean another trip to Bunnings.
“Know that you can work for the loan, and that you can get past that,” said Mr Reardon.
“Buy the cheapest house you can afford. Then spend your time investing in the home to make it as beautiful as possible.”
The economist also advises those who are looking to buy a house to look for a frugal partner because this will help increase the chances of a life with less financial pressure.
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