Reserve Bank governor Michelle Bullock will announce the nation’s interest rate future, with expectations mortgages will soon cost more. Picture: Martin Ollman.
Australian mortgage holders could be on a path to shelling out more than $100 extra a month, and over $1200 a year, for their home loan by the end of today.
But with the right approach, and some forward planning, a rate hike can just 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 position where it’s just an excuse to go to Bunnings.
The advice comes as the RBA is widely tipped to raise the nation’s cash rate by 0.25 percentage points.
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For the nation’s $694,000 average loan, according to the Australian Bureau of Statistics, that means repayments will rise from $4233 a month to $4337.
NAB’s Head of Australia Economics economist Gareth Spence said his first step after a rate rise would be to “give my home loan a quick once-over”.
“Lots of people don’t realise it’s possible to link multiple offset accounts to reduce interest charges,” Mr Spence said.
“Little things like that can help ease the impact of a rate rise, without requiring any changes in spending.”
NAB senior economist Gareth Spence advised home owners to look very closely at their loan and how they use things like off-set accounts to keep it under control.
Commonwealth Bank Everyday Banking executive general manager Monica Wegner said it was important to be proactive, and by using money management tools in banking apps it could be possible to spot behaviours that would hurt your ability to cope with a hike.
They could also help develop good financial habits, and help you build up to savings goals and other financial milestones by breaking them down into smaller steps.
AMP Capital chief economist Shane Oliver said he wasn’t fully convinced a rate hike would occur, with certain aspects of inflation not necessarily calling for such a decision — though he noted the RBA had essentially suggested they might hike in their last commentary.
His advice to those with a mortgage was to plan ahead.
AMP Head of Investment Strategy and Chief Economist Dr Shane Oliver’s top tip to beat Reserve Bank rate hikes is to tighten your belt before they happen. Picture: NewsWire / John Appleyard.
“My strategy was always to pay off a mortgage as soon as I can,” Mr Oliver said.
“I’d put everything into it knowing that once you got the balance down, after say a year, you have more leeway to absorb rate rises.
“Chuck any money at the mortgage and bear in mind that once you get that down a little bit, it will be easier in the years ahead.”
Your mortgage balance is also a good place to put any bonuses or unexpected windfalls.
While he noted that you could look at fixing your interest rate, at this stage “the horse might have bolted”.
Ray White chief economist Nerida Conisbee said having traded a Melbourne mortgage for a Sydney one she had never given more thought to her repayments than she does today.
Ray White Group chief economist, Nerida Conisbee, advises anything from cutting back your clothing budget to running cost-benefit analysis before committing to bigger purchases.
The result has been that she’s second guessing her clothing budget, but also turning back to some of the behaviours she learnt from her father while growing up.
“My dad was super thrifty,” Ms Conisbee said.
“He did a cost-benefit analysis before he bought a bread maker when we were kids. Some of that discipline has rubbed off, so I just channel a bit of that.”
Independent economist Nicki Hutley, who provides support for the Climate Council, said she’d grappled with a mortgage when rates were almost 20 per cent — and the big thing she’d learned was to ignore what your bank was willing to lend you.
“Leave yourself a bigger buffer zone,” Ms Hutley said.
Her own children have been advised to keep paying their mortgage at the levels they were before rate cuts commenced last year, and for those who have done that a rate hike will just mean they aren’t getting as far ahead of their mortgage as they otherwise might have.
Independent economist Nicki Hutley says homebuyers should ignore what their bank will lend them and instead focus on what they know they are comfortable paying off as a loan.
Likewise, one of the best moves she said you could make was to keep looking at supermarket specials even when times are good and rates are being cut.
“Money isn’t to be wasted, and the more you can save the better,” she said.
Finally, Ms Hutley said it was worth keeping the perspective that with where home values are today, you are doing well to have reached a point where you can take on a home loan.
“Over time, you will have you price go up and get paid more,” she said.
“And as long as you keep your job, there’s always things you can do to tighten your belt.”
Housing Industry Association chief economist Tim Reardon said the best move he’d made was to pay off his mortgage before he was 40, but he was still worried about the impact of a rate hike on his side hustle as the backer of a gin distillery.
HIA chief economist Tim Reardon says the best way to beat a rate hike is to be thrifty — and find a partner who has the same mentality. Picture: Tertius Pickard.
“The more money the rates suck up, the less money for people to spend on what is, in my case, a luxury good,” Mr Reardon said.
With that motivation, his main advice was that beating interest rate hikes started with when you purchased a home — and for those who had gotten it right, a rate hike might just mean another trip to Bunnings.
“Know you can service your mortgage, and that you can get ahead of that,” Mr Reardon said.
“Buy the cheapest house your ego can afford. Then spend your time investing in the home to make it as cute as possible.”
The economist also advised those still yet to look at buying a home to seek out a thrifty partner, as this would help increase the likelihood of a life with less stress over finances.
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