The current talk in the media is that we could be seeing banks increasing the interest rates for home loans. This could have some huge ramifications for a number of families. Since the global financial crisis we have increasingly seen that the interest rates have been reducing.
I know when I got into Real Estate 10 years ago it was about 7% to 8% and when I bought my first property…
I thought I got a bargain interest rate of 6.65%.
Now there are interest rates beginning with 3% however majority are in the 4% range.
The average home loan figure in Australia in 2015 was $382,500. Based on this you could currently be paying repayment of $2,136.00 per month (on an interest rate of 4.5%). If interest rates where to rise to say 7.5% then repayments would increase to $2,837.00 per month so that’s a different of $701.00 a month.
So what would it mean to you if there was a sudden increase in your interest rate?
What would happen if your interest rate increased to 8%?
Would you be able to make your repayments with ease and no worry?
For many this could spark some anxiety and fear of the unknown as well as their affordability of their current life.
I know I was initially very worried when I heard it, as that’s money essentially that I have allocated to other spending or savings. I also worry for the fact that there could be increases in other items that attribute to my general cost of living.
So it may start with the interest rates but it could be a snow ball effect.
Now I don’t want to worry you, I don’t personally see the interest rates jumping that high and quickly.
But I think its great time to get the conversation started about what would you do, if this happens?
The more I think about it the more I see it now as a great opportunity for us all.
The better and more prepared that you are for something its less likely to hit as hard.
So why can interest rates be good or the ‘secret ingredient’ for you…
- You can start paying the extra interest now. Using a mortgage calculator work out the different in your repayments. As per the example above you would then start putting an extra $700.00 per month to your mortgage. This will not only be reducing your principal (amount borrowed) but it will also start to reduce the interest you are paying. And then if the interest rates change you won’t notice the difference.
- Start saving money so that you have a buffer of savings if prices increase. This will give you time to make decisions when and if the interest rates rise.
- Put money away towards your emergency fund…don’t know what that is well read this…
Get started today and come up with a plan on how you are going to tackle this for you situation.
Remind yourself that the hard work will be worth it!