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RBA’s 4th straight rate hike stings: 5 steps every borrower needs to take now


Borrowers can take the heat out of rising rates by using an offset account and getting a better deal on your mortgage.

The Reserve Bank of Australia (RBA) has lifted the cash rate for the fourth month in a row. The cash rate, in April just a tiny 0.10%, now sits at 1.85%.

The official cash rate target is a benchmark for interest rates. It affects lenders' costs to borrow money. Any rate rise usually affects borrowers on variable rate home loans in the form of higher interest rates.

Borrowers should be used to this by now, but expect your lender to increase your home loan interest rate again in the next few days or weeks.

5 ways borrowers can soften the blow of rising rates

Rising cost of living is affecting every Australian. The price of energy, food, fuel and rent is going up every month due to a combination of rising demand, pandemic-related supply strains, war in Ukraine and years of very low interest rates.

And higher mortgage costs certainly don't help. Here are some tips for borrowers worried about rising rates:

  1. Work out how much today's rate rise will cost you. It's painful, but sit down with a mortgage calculator and work out exactly how much higher rates will impact your finances. Simply take your loan amount and your current rate and then add on today's increase.
  2. Redo your household budget. Once you know how much extra you're spending on your mortgage, you can re-examine your budget and see if there are any areas you can cut back on. This is incredibly hard given that so many daily expenses are increasing, but the more information you have about your spending the more control you have.
  3. Consider refinancing your home loan. When the rate rise hits, it's always worth shopping around for a better deal. Everyone's loan is getting more expensive (unless you locked in a low fixed rate), but many lenders offer enticing low rates for new customers. Compare, find a better home loan rate and switch.
  4. See if you can take advantage of an offset account. If your home loan has a 100% offset account you have a helpful way to minimise your loan costs while building up your savings. Every dollar you save in the offset account shortens the length of your home loan. Your monthly costs stay the same but you'll repay the loan faster. It's a bit like a high interest savings account. The higher the interest rate on your loan, the bigger benefit of the offset account.
  5. Take advantage of higher interest rate savings and investing products. Rising rates are a positive for anyone looking to generate interest through cash, in the form of higher returns in a savings account or a term deposit. Putting some money here could help you generate more wealth even while getting stung by higher loan repayments.

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