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This is how you brace yourself for the rate hikes to come

The May 3 decision of the RBA to lift the official cash rate is just one out of the many. It has given a head’s up that more rate hikes are to come. Fuel costs are up and food costs are, too. To damp down the effects of the inflation, the Reserve Bank has no other option but to raise the cash rate.

The Consumer Price Index (CPI) keeps going up, too. The CPI takes account of 87 expenditure classes. Out of the 87, 70 have seen a jump in prices. This is the first time this happened in the history of Australia’s CPI. 

The Federal Reserve has announced the possibility of the cash rate going up further in the coming months. How can you prepare yourself as a regular citizen with bills to pay and a mortgage to save up for? 

Make as many repayments as you can

One of the biggest deciding factors to go for a variable rate loan is the freedom to make as many extra repayments as you can. This feature comes in handy now that you are sure that the lowest rate you will have on your mortgage is the current rate. It’s only going to go up from here. 

Two benefits of making extra repayments are: you create a safety buffer on your mortgage and you get to pay off your loan much faster.

You can say that getting used to paying a higher monthly mortgage is an added benefit/

Here is what you can do: you can increase the amount you set aside for your monthly mortgage by a certain number for every 100,000 borrowed. If your budget allows for it, you can add $500 on your monthly mortgage repayment.

If you have an offset account linked to your home loan, then it would be a good idea to also stack funds..It’s also tax-friendly to do this. You get to enjoy a low-interest rate after the money in your offset account is counted against your mortgage dues. 

Should you switch to a fixed rate?

Fixed rates are appealing in times of uncertainty. It gives you peace of mind knowing exactly how much you will have to pay in the coming months. 

However, fixed-rate loans are not very competitive right now. As economists have inferred, there could be a point in the near future where the rates for variable loans and fixed loans will be almost identical. If that will be the case, what is the point of switching? Not to mention that switching is not free. 

Fixing is a big commitment. Remember that you also have to pay for insurance. Once you decide that it is no longer for you, it may cost you much bigger in exit or break fees. 

Right now, what you can do, with a variable rate loan, is focus on building the funds in your offset account and making as many repayments as you can.

Right now, if you are just about to get into the property market, listen. Get some solid advice from a professional broker. The pandemic muddied the waters for the property market with the crazy low rates. And now, the inflation is taking its turn. If you are confused about what your next step should be, a professional guide is what you need. 

Although the final decision rests on your shoulder, brokers know the in and out of loans and can help you arrive at a sound decision.