The official cash rate may not have moved since it was cut by 25 basis points in August 2016, but many experts agree that interest rates are due to rise again soon.
Ex-RBA board member John Edwards, in a column for the Lowy Institute, has predicted that there will be eight interest rate rises in the next two years. This would bring the official cash rate to 3.5 per cent in 2019, up from the current historic low of 1.5 per cent.
If lenders follow suit, a 2 per cent rise could equate to an extra $250 a month in repayments on a $300,000 mortgage.
While eight interest rate rises may sound daunting, there are a few things mortgage holders can do to help protect themselves from future financial stress.
- Look for savings now
Now is the best time to start looking for ways you can save on monthly expenses, whether it’s cancelling a membership, cutting down on groceries or finding a better home loan rate.
Shop around and compare your home loan options because even a small saving each month could make a significant difference over the life of your loan, not to mention it will help reduce any financial impact should rates get higher.
- Make extra loan repayments
Prepare a financial buffer by paying more than the minimum amount on your loan each month. Making additional payments will help you get used to paying a higher rate and it has the added bonus of helping to reduce your mortgage faster.
- Consider a fixed mortgage rate
If you don’t want to have to worry about your rates going up in the future then a fixed rate, or partially fixed, could the best option for you.
When it comes to fixed rates it’s best to get in before interest rates start going up otherwise you’ll miss out on the best deals. While fixed rates can offer peace of mind, it’s important to be aware that these types of loans can have restrictions.
Overall, there’s no need to worry about rising interest rates just yet but it’s best to be prepared if you want to try to prevent financial stress in the future.