Australian home loan borrowers must be prepared for more interest rate rises ahead

WHILE the RBA has left the cash rate on hold, home loan customers are being urged to prepare themselves for future rate rises that will see many deals hiked.

Home loan customers are being urged to pay off as much off the mortgage debt as they can while rates are low.

HOME loan customers are being urged to prepare themselves for the constant flurry of rate rises that will see many deals hiked if they haven’t already.

While the Reserve Bank of Australia kept the cash rate on hold at 1.5 per cent today many borrowers are already experiencing rate rises — just this week two of the nation’s biggest lenders Westpac and National Australia Bank lifted their rates.

Westpac stung customers on interest-only loans and Westpac raised rates on interest-only owner occupier and interest-only investor deals.

This followed increases by the Commonwealth Bank last week.

But industry experts are encouraging borrowers to be proactive and prepare themselves for the shifting rate deals which will see them paying more.

REFINANCE

Lender ME’s head of home loans Patrick Nolan said reassessing your loan can be a great place to start.

“It’s important not to become complacent, be aware of what your repayments will be if rates do rise and how they will impact your money goals such as renovations, holidays or other lifestyle choices,’’ he said.

Looking at where you are financially is an important first step.

“For every 25 basis point increase in the cash rate the average borrower ($400,000) would pay an extra $55 a month on their mortgage.

“It’s worth considering refinancing and locking in all or part of your mortgage at current rates.”

Many fixed and variable rate deals below the four per cent mark are still available.

FIXING

Home Loan Experts’s managing director Otto Dargan said fixing is a good way to go while there’s a last “window of opportunity” before locked-in deals significantly climb.

Home Loan Experts Otto Dargan said fixing now is a good idea for many borrowers.

“Five-year fixed rates are still around the 4.2 per cent mark in some situations,’’ he said.

But he said fixing should be thought through carefully because it’s a good idea if you plan to sell your property during this period — you could be slammed with significant break costs.

ROCK-BOTTOM DEALS

Dargan warns that some of the rock-bottom variable rate home loan deals may be too good to be true.

“These deals are priced below market and inevitably these lenders’ rates are going to go up,’’ he said.

“Their loan contract allows them to change their rate at any time, so they are just going to sign people up and then jack the rates up.”

Be aware of home loan deals that could be too good to be true. Picture: iStock

PAY EXTRA

For borrowers who have loans that allow them to pay extra experts encourage them to do so while rates are at rock-bottom lows.

Nolan said optimising this period can help drag your principal debt down and help you pay the loan off at a much faster pace.

“If you haven’t done already, pay off more on your loan while rates are low,’’ he says.

“This could involve paying a lump sum into your mortgage, increasing repayments or switching to fortnightly repayments.”

Dargan said for owner occupiers it’s critical to pay principal and interest and not just interest-only and for investors he said it’s best to seek tax advice or only make payments into an offset account.

@sophieelsworth

Originally published as Australian home loan borrowers must be prepared for more interest rate rises ahead