2 November 2022 – At the time of writing, the Reserve Bank of Australia has for the seventh month consecutively, lifted Australia’s cash rate by another 25 basis points to 2.85%. This combined with home buyers paying much more for homes over the past couple of years, and inflation at 8% is increasing stress on Australian households and families. So how can you manage these extra costs and protect your standard of living? Please read on for our top tips for surviving and thriving in the months ahead.
How Do Interest Rates Affect Mortgage Repayments?
Do you worry about higher interest rates and monthly repayments? Read these tips to manage your repayments;
Know Your Numbers
Knowledge is power. Understanding all incomings and outgoings plus knowing the balances of your savings and credit facilities at any given time is a must. Check what interest rate you are paying on credit accounts and what you are being charged for utilities and regular ongoing expenses. How much are you spending each month? To know the true numbers here, you need to go into your online banking and check your transaction listings. This is good practice anyway as it’s common to find debits to your accounts that don’t belong there. Make it a habit to go through your spending at least monthly and categorise where your money is going. Categorise your spending and then differentiate between essentials and discretionary spending. Research ways to reduce your spending on essentials and cut as much non-essential spending as you can. Don’t be discouraged, even if it is not good news, having a budget and keeping your spending in check can turn your situation around significantly and very rapidly.
Pay Down And Close High-interest Credit Cards, Store Cards Etc
This is a given. One of the easiest ways to lose control of your finances is by buying on credit. Very few of us have the discipline to resist impulse spending when we have a large available balance to us on credit. Unfortunately, this almost always comes with a very high interest rate. Worse still, if you pay only the minimum or a little more each month, you’re paying hefty interest for the privilege.
Consolidate Debt
If you have high levels of consumer debt, my tip is to pay all extra money left in your budget each pay day, straight off the balances and reduce the limits as you go so you are not tempted to spend more. If the balances are just too high for you to make a dent, perhaps talk to your Broker about consolidating some or all this consumer debt, into your home loan. There are several ways to do this, and some lenders will even allow a separate split over a shorter term so that you benefit from the lower interest rate but don’t blow repaying it out over the life of your home loan and pay even more interest. This is not something to do lightly and it is essential that you close all the credit facilities and cut up the cards. Failing to do so will put you right back in the same boat. Getting ahead financially means spending less than you earn.
Build a Buffer
If you don’t already have one, open an emergency account in your online banking. Don’t attach a card to it. Having that one step extra to access the funds will make you stop and think before spending it. Set a goal and plan how to get there. Add the chosen amount to your budget so that it automatically gets moved to the account on pay day. It is important to have cash available in case of emergencies
Make Extra Repayments / Use Your Offset
Go online and search out home loan repayment calculators. Add in your mortgage and interest rate to compare your current monthly repayment to what it might be if rates go up. This will provide you with some insight as to what could be around the corner. Consider paying the higher amount off your home loan now to prepare you for the expense whilst also paying your home loan down faster and reducing interest. Every extra dollar you pay, comes off the principal, therefore reducing future interest. If you have an offset, storing savings in there saves you home loan interest and provides flexibility to cover emergencies if required.
Get a Better Deal On your Interest Rate
Do some research as to the interest rates and deals that lenders are currently offering and compare your own interest rate. If you have been in the same home loan for 12 months or more and haven’t asked for a discount, mortgage brokers Brisbane can do some pricing on your home loan to see if they can get you a better deal. Sometimes it’s as simple as your Broker filling in a pricing request on your behalf. Having your broker do regular annual home loan reviews is essential to ensure your home loan is working for you.
If you bought with a very small deposit two or three years ago, you may be paying a premium on your interest rate due to that. Lenders reward borrowers with higher deposits. That last couple of years has seen equity increase greatly for some homeowners. If that’s you, ask your Broker to check the current value of your home to see if increased equity may persuade your lender to adjust your rate on that basis.
Consider Refinancing
If your current lender isn’t willing to provide you with a discount, consider refinancing. Having that home loan review done by your Broker will answer this question as to whether there is any significant benefit to refinancing. We would never recommend you move your lending unless there is a clear advantage to you.
Have a Budget
This comes back to knowing your numbers. Your budget is the only way to keep your finger on the pulse, track your spending, saving and know where you stand. Brisbane Home Loans has a comprehensive budget spreadsheet at no charge. Click on this link to access the budget here
Assess & Reduce Spending
- Now you know your numbers, make time to research better deals on regular expenses such as food, utilities, phone, internet, pay tv and transport.
- Stick to your budget and pay bills on pay day
- Use the 48-hour rule for purchases to avoid impulse spending
- Pay cash rather than credit
- Cancel all subscriptions or memberships that you are not regularly using.
- Skip the mobile phone upgrade and consider a cost effective 365-day pre-paid plan.
- Monitor your electricity and water usage – use a water saver on the shower, cut down time in the shower, run air conditioners at recommended temperatures and turn appliances off when not in use.
- Avoid paying a premium for brand name products unless it’s important
- Hang your clothes on the line instead of using the clothes dryer
- Cook more and eat out less, remove your Uber Eats app from your phone.
- Use online shopping to purchase the supermarket specials, save money and avoid impulse buying
- Check marketplace and ask friends about local grower’s markets
- Start a vegetable garden – Gardening groups online, Youtube videos are great resources
- Review your fixed expenses and look for better deals every six months – Health, Household, Car Insurances, electricity and phone. There are many savings to be had on utilities and phone. Search online, ask in groups, talk to your friends and make sure you are getting the best deal
- Find cheap entertainment – join the library, watch movies, gardening, spending time with like-minded friends are all great ways to get on track.
Ask For a Raise
If you’ve been with the same employer for some time without receiving a raise in your pay, now may be a great time to ask. Google the best ways to ask for a raise and consider what approach suits you. Do some research on your role/industry, what are employers offering on Seek or other vacancy websites. Staff shortages in many sectors means that employers are keen to hold on to their quality teams. Give it some thought, write a list of how you add value, how long it is since you have had a raise, what the going rate is in your industry now. Think through any objections you may receive and be ready to answer them. Be realistic but ask for a little more than you need and be ready for the response. How will you deal with it if your employer cannot or will not oblige or offers less than you need.
Increase Your Income
Get a side hustle/use your skills on Air tasker, take on a casual job and use all extra money earned to pay off your home loan or save.
Save your bonus/overtime income and add any windfalls directly to your savings account or mortgage.
Clear the clutter – sell unwanted items
Rethink Your Accommodation
Do you have a spare room, granny flat – take in a boarder
If practical, can you share accommodation with family temporarily and rent your home out. This is probably only practical in emergency and not possible for everyone, but it is a solution for some.
Ask For Help
Your mortgage broker is a product specialist and will be happy to assist you in seeking out the best deal for you. If you haven’t done one recently, book in for a home loan review, ask us about pricing for your home loan.
The Australian Government Money Smart Website has great tips and tools and can direct you to counselling and assistance in financial crisis. Find them here moneysmart.gov.au
Stay Positive
Stress is a useless emotion unless it spurs you into action and it’s certainly not a productive place to stay. Know your numbers, plan, take action, review regularly, talk to like-minded people, appreciate the opportunity to learn new skills, clear the clutter and make new connections. Many people are in the same boat and would welcome the opportunity to share tips and support. If you take charge now, you will likely come out the other side with new found skills and confidence in your financial journey.
