Have you been affected by rising interest rates?

It is a daunting world we live in with regards to home loan interest rates. Since 3rd of May, there have been five rises in the official rate by the Reserve Bank with all but the most recent rate rise, increasing the cash rate by 0.5%. This has been matched by banks in increasing variable home loan rates five times in the last five months.

Many home loan customers are still adjusting the concept of a rising interest rate market. Up until this year, there was more than a decade without increases in the official cash rate, with the last occurring in November 2010. This has meant that there is a very large number of home loan customers who have never experienced a home loan rate rise....until now.

Are you starting to feel the pinch as your home loan rate increases? With rates having remained historically low prior to the recent bout of rate rises, many home loan customers did not reduce their repayments when their interest rate fell over the last few years. This has meant a couple of things. Some home loan customers have inadvertently created a 'buffer' in their home loan where they have accumulated surplus funds in their loan, which can be redrawn. Other customers may have yet to see their home loan repayments change, thereby not feeling their bottom line alter, given that they have been paying more than that which was required by their home loan interest rate.

For these customers however, there will come a time when the repayment required of them will be higher than what they are currently paying. The question is, when will this create a burden which is difficult to manage for everyday Australians. When will the increase in required repayments start to bite?

The answer to this question is unique to each person and their individual circumstances. What I am encouraging my home loan customers to consider, especially those who are yet to feel that pinch or who are currently in a fixed rate which will expire in the coming year, is to consider creating that buffer. Make a level of repayment which is higher than that is required of you, assuming that is manageable. For some customers, they are still in this place. They may be enjoying a low fixed rate which can lull you into a false sense of security.

But these customers actively made changes now, where possible, to combat what will come in the future? It is human nature to often be reactive. However, depending on your circumstance, there are things you can do right now which may make life easier for you down the track.

To discuss what you can do now to help you in the future, please do not hesitate to contact me.