The Reserve Bank of Australia (RBA) has recently announced a cash rate rise of 25 basis points, bringing the current rate to 3.85%. This marks the first rate rise after a month-long break, and it’s important to understand what it means for your home loan and finances.
In this blog post, we’ll discuss what the latest cash rate rise means, its impact on home loans, and provide some tips on how you can manage your finances effectively.
What does the cash rate rise mean?
The RBA Governor, Philip Lowe, stated that the board paused rate rises last month to assess the impact of previous rate rises on the economy. However, strong jobs and inflation data have indicated that more work needs to be done to control price rises. While inflation in Australia has passed its peak, 7% is still too high, and further rate rises cannot be ruled out.
The latest rate increase means an additional $78 per month on repayments for a half a million dollar home loan if passed on in full by banks. Customers owing $500,000 will have seen their repayments rise by around $1,058 per month since the RBA started hiking rates in May last year. This increase can have a significant impact on your finances, especially if you’re already struggling to make ends meet.
How can you manage your finances effectively?
If you’re feeling the pinch of higher home loan repayments, here are some tips to help you manage your finances effectively:
Use your offset account – If you have an offset account, use it! Having your savings in offset will reduce the interest you pay and, in turn, will pay off additional principal. This can help you save money in the long run.
Make extra repayments – If you can make extra repayments, consider doing so. An extra $100 per month on a $500,000 loan will knock off approximately 2.5 years off your mortgage and save close to $50,000 in interest over the life of the loan. Use a mortgage repayment calculator to see how much you can save.
Review your current interest rate – Talk to your lender or a mortgage broker to review your current interest rate. There may be better rates available to you that can help you save money.
Consider refinancing options – Review your refinancing options. Mortgage brokers can help you find better deals on home loans without charging you any fees, and many lenders offer refinance rebates, which can help you save money.
The latest cash rate rise means that you’ll need to be mindful of your finances, especially if you have a home loan. Use your offset account, make extra repayments, review your current interest rate, and consider refinancing options to manage your finances effectively.
If you’re struggling, don’t hesitate to reach out to a mortgage broker for help. Hayley Crow at Paris Financial is our expert Mortgage Broker and is here to discuss the refinancing options for your home loan. With some smart strategies in place, you can navigate the latest cash rate rise and stay on top of your finances. Get in touch with Hayley on: (03) 8393 1009.