Interest Rate Decision October

The Reserve Bank of Australia (RBA) announced on Tuesday 2nd of October 2018 that they had decided to leave interest rates unchanged. Despite this, borrowers should not rest on their laurels…

We’ve seen recently that even though the RBA has left the official rate unchanged, it doesn’t mean that lenders will follow suit. You can read our blog here on recent developments where three of the big four lenders increased interest rates out-of-cycle.

The further possibility that lenders will increase interest rates as they battle increased funding costs, combined with concerns about the Australian property market, is very real.

The next move…

Despite the official rate remaining unchanged, the announcements coming from the RBA indicate that they believe that the next interest rate move will be an increase. Considering that the last increase in interest rates was in 2010, this could surprise the large chunk of the housing market that obtained a home loan in the past 8 years.

Any increase in interest rates will obviously have an impact on personal budgets for people with a home loan. I don’t know about you, but I can barely remember a few weeks ago, let alone 8 years ago, so the reality is that many people are not going to have any idea how to manage an increase in home loan repayments.

The best time to prepare is now

I believe that it’s intelligent to prepare for the worst when things are good. We are still in a market environment where interest rates are at historic lows… even with the recent increases from CBA, Westpac and ANZ.

Rather than wait (like most people will) until interest rates actually move, now is the time to take a look at your home loan and other financial arrangements to reduce the impact of an interest rate increase.

Areas to review

I know you’re smart (you wouldn’t be reading this blog otherwise) so you’re probably keen to know what areas of your personal finance you should consider reviewing. Here’s a quick list:

• Your Cashflow Management System: Some people have budgets… but budgets are made to be broken. I recommend you use a cashflow management system that is flexible and evolves along with your needs over time. Making sure that your buffer levels are ‘healthy’ is crucial here…
• Your Debt Arrangements: I’m not talking about just your home loan… also consider your strategy around holding onto (or consolidating) credit cards, personal loans, or other types of loans.
• Your Investment Strategy: If your investment strategy involves borrowing fuel the growth of your portfolio, what can you do now to prepare for stricter lending conditions in the future?
• Your Personal Protection Strategy: If you’re repayments increase, and something subsequently happens to you affecting your ability to earn an income, do you have a strategy in place to make sure that you can continue to meet these repayments?
• Your Quick Wins: With all the areas suggested above, you should consider whether there is any way you can achieve some “quick wins” through saving money on repayments, premiums, interest, or other investment fees. Any money that you save now can reduce the impact of future interest rate increases.

My clients use the Personal Wealth Portal to stay on top of all of their personal finances. You can check out the Personal Wealth Portal here.

Fast? Or slow?

If you’re looking for a shortcut to assess all of the above areas, then simply get in touch with us. We recently saved a client $9,816.60 in first year fees, premiums, and interest repayments. This was first year savings only… if we extrapolated that amount over 10 years… well, you get the idea.

Author: Shane