Home loan interest rates rose again following the Reserve Bank of Australia’s decision to lift the official cash rate by 25 basis points to 3.35% in February.
The move will heap yet more financial pressure on Australian homeowners, many of which are already dealing with the biggest spike in the cost of living in two decades, according to the Australian Bureau of Statistics.
That’s after working households saw their living expenses soar by an annual rate of 9.3% in the December 2022 quarter, significantly higher than the consumer price index which rose 7.8% over the same timeframe.
The good news, though, is that there are steps you can take to give yourself some financial breathing room and cushion the blow from runaway prices.
Better yet, several of the following tips can help you keep your finances in check without making you thoroughly miserable in the process. That’s because being good with money is more about making smart financial choices than eating less avocado on toast.
Consider refinancing to a lower-rate loan
You don’t have to look far to find the culprit behind December’s spike in living costs.
Home loan interest charges for working households jumped 26.6% over the December quarter to be up 61.3% over the year, after lenders large and small passed on the RBA’s rate rises to their customers.
But while loyal customers have been slugged with the full impact of nine successive rate rises, lenders have been aggressively discounting on the sly for new borrowers.
As a result, as of December 2022, the gap between the average interest rate existing owner-occupier variable-rate borrowers and new customers pay was 0.51 percentage points.
Fortunately, refinancing your mortgage can help you fix this and lower your borrowing costs – although keep in mind it’s not suitable for every borrower and does come with costs.
Consolidate higher-rate debts into a lower-interest loan
In a similar vein, high levels of debt can put a strain on your finances, so, firstly, avoid taking on any new debt where possible (including buy-now-pay-later). If you have any high-interest debt, such as car loans or personal loans, consider rolling it into a lower-interest loan such as your mortgage.
Debt consolidation can reduce your monthly costs and help you save on interest payments. That said, you could pay more in interest over the life of the new loan.
Cut your bills by shopping smart
Reducing your expenses doesn’t just involve cutting back on discretionary spending, such as entertainment and dining out (although that is a good idea). You can also save money by finding more cost-effective ways to meet your needs, such as:
- Taking advantage of sales and discounts
- Buying in bulk where possible
- Choosing generic or store-brand alternatives over name-brand products.
Budget for higher interest rates
Sadly, it’s pretty much a given that the RBA will raise rates again in the coming months. As such, it’s a good idea to budget for increased repayments on your mortgage (if possible) ahead of time.
Increase your income
Consider taking on a part-time job or freelance work to supplement your income. You can also sell items you no longer need or use for extra cash.
Just Imagine Finance can help you refinance or consolidate debt. Contact Catherine on 0414 673 359 or email@example.com