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Interest Rates Are Increasing – how this could affect you

In recent months, we’ve seen the Reserve Bank of Australia increase the official cash rate many times, and consequently the banks have also moved in this direction with their interest rates. This means borrowers will be paying more per month for newly established loans.

Two major flow on effects of these rises are:

  1. Borrowing capacity for new loans has reduced.
  2. Those on fixed rates need to be careful, paying attention to when their fixed rate expires.

 

How can interest rates affect my borrowing capacity?

As you can imagine, when interest rates rise, your borrowing power decreases. This is because as rates increase, so do repayments. And your borrowing capacity is calculated by looking at what you can afford to pay based on your income and spending habits.

Sometimes rates change during the loan process which could affect your borrowing capacity. To help combat this problem if you’re in the process of applying for a loan you could consider paying for a rate lock. This means that your interest rate won’t change between the offer you make on the home, and settlement, if you close within the specified time frame and there are no changes to your application.  Costs vary, so mention it to your mortgage broker to discuss further.

 

What should I do when my fixed rate expires?

For many Australians, the fixed rate period is due to expire in the next 12 months. With the large increase in interest rates over the last few months and with more possibly to come, many are now considering what to do when this period ends. So what are your options?

What many people don’t realise is that if you do nothing, your loan will likely default to a Bank Standard Variable Rate (BSVR). This is often higher than what you could get if you shopped around, or higher than if you re-signed with the same bank!

Instead, it’s time to look at reviewing your home loan and preparing yourself well before the fixed rate period ends.

You could look at options like refixing your home loan, switching to variable, or splitting your home loan. 

The most important thing whether you are looking at a new loan, refinancing or if your fixed rate is due to expire, is to contact us early so we can work on a solution that best suits you.