Home loan costs rise $400 in 3 months: Here’s what you can do about it
Rate hikes have left borrowers stunned, but careful mortgage management and refinancing remain some of the smartest steps you can take.
Cast your mind back just 3 months ago, when interest rates were still at record lows. If you had a home loan of $615,000 (that's about the Australian average in 2022), you'd now be $400 poorer every month.
That's how much the latest interest rate rises have hit borrowers.
In April, a variable interest rate of 2.00% was a very good deal. On this rate, over 30 years, your monthly mortgage repayments would run to $2,273.
Since then, the Reserve Bank of Australia has raised the official cash rate target by 125 percentage points. That 2.00% interest rate would now be 3.25%.
And now your monthly repayments would be $2,676. That's $403 more each month.
Over a year, this will cost you $4,836 more in interest. And there may be more cash rate rises in the months ahead.
What every borrower needs to do
It's a bleak situation, and one made all the harder by the fact that everything is getting more expensive lately. But there are a few steps you can take to keep on top of your rising mortgage costs:
- Make sure you're getting the best deal from your lender. Your lender may be offering an enticing interest rate for new borrowers, even with identical loans to yours. Call your lender up, and call them out on this! Ask them to put you on this better rate (they probably will).
- But don't stop there: Compare rates from other lenders and look for a better deal. Even if every lender is lifting rates, there's likely to be a better deal available with a new lender. Refinancing is also easier than you think.
- Build up savings in an offset account. If you are in a position to save money after all these rising living costs, consider putting it in your home loan's offset account (if you have one). An offset account functions like a bank account but the money temporarily reduces your loan principal. In a time of rising rates, an offset account only becomes more valuable.
- Rising interest rates can boost your savings. Even if your loan doesn't have an offset account, rising interest rates are good news for high interest savings accounts and term deposits. These products are starting to become more worthwhile investments as interest rates rise.
Need more home loan options? Check out some of the market's lowest rates.