What to do if you’re worried about the possible interest rate rise

Introduction

Families across Australia, and the world, are doing it tough as interest rates and inflation rapidly rise. This flows on to the cost of living, impacting the quality of life of many Australians. Unfortunately, another rate rise is predicted to occur next week. This will only make life more difficult for many Australians. Consequently, this week’s blog post breaks down the predicted rate rise, it’s impact on Australian mortgages, and what you can do if you’re struggling to cope with your loan repayments.

Problem

Currently the inflation rate is 5.4%, which the Reserve Bank of Australia (RBA) are trying to reduce to two to three percent by increasing interest rates. Interest rates have skyrocketed from 0.1% in May 2022 up to 4.1% in June this year. However, inflation is still above what is ideal (two to three percent) at 5.4%. Thus, there are predictions that the RBA will push up interest rates once more on the seventh of November. The change is expected to take the interest rate to 4.35%.

Many families across Australia are struggling to pay their mortgage monthly. Changing from fixed to variable rates will increase this, with 550,000 people to go from fixed to variable mortgages in the next few months. The amount of fixed rate loans that changed over to variable rates is now over one million, and when the year concludes, this amount will get close to 1.5 million. The reason such a change in rates is problematic, is because many Australians are going from a pandemic-era fixed rate of approximately two percent, to variable rates of six percent – a massive jump, and a change worth $350 billion.

Since the RBA began the squeeze, families with $585,000 mortgages currently pay an additional $1,415 monthly. The staggering number of 1.57 million Australians, or close to one borrower out of every three, are classified as “at risk of mortgage stress”. Many families are digging into their savings from the pandemic years in order to pay their mortgage, while others are foregoing essential items.

Solutions

However, due to the known nature of the change in interest rates, the nation’s robust employment market, and people’s pandemic savings, mortgages are still being paid regardless of a reduction in people’s reserves and splurging.  

If you are struggling with your home loan, there are things that you can do to manage your financial situation. If you speak to your bank, you may be able to get a reduction in your credit card payments, a change to the loan’s time period, put off payments temporarily, or a reduction in your home loan payments. Otherwise, you can speak to a financial advisor, or a mortgage brokerage such as AA Finance Solutions, for help and advice.

Key points

Here is a selection of key points that highlight the crux of the current issue.

• Inflation is anticipated to rise for a little longer.
• As a consequence, there is an increased chance of the RBA raising interest rates even higher to bring down inflation.
• Many homeowners are moving from fixed-rate to variable interest rates on their home loans, a massive jump thanks to record low interest rates during the COVID pandemic and the soaring current rate.
• Many families are foregoing essentials, or digging into their savings, to pay their increasing monthly mortgage repayments.
• If you are struggling, reach out to your bank, a mortgage broker, or a qualified financial advisor.

These key points are important to remember as the impact of higher interest rates continue to be felt by families across the nation.

Conclusion

It’s a tough time out there at the moment, and things are going to get a little tougher for a little longer. If you or someone you know is struggling with their mortgage repayments, feel free to reach out to the friendly team at AA Finance Solutions for help and advice. You can contact us over the phone, by email, online, or drop in during working hours Monday to Friday.