Resi Mortgage Corporation says today’s announcement by the Reserve Bank of another successive rate rise will now lead more borrowers to move to protect their financial position and prepare accordingly for the new rate cycle ahead.

Resi’s Head of Consumer Advocacy, Lisa Montgomery says although this rate rise may only add around $46 to monthly repayments on an average $300,000 loan*  - which in isolation seems a manageable figure, the effect of these rate rises will compound significantly as more occur.

She says: “Although $46 may seem a relatively easy figure to process now, its feasible that in the next six months those borrowers may have to find an additional $200 per month for repayments from somewhere within their household budget  - and that’s the scenario they should be focusing on.”

Montgomery says each category of borrower including owner occupiers, investors and first home owners should be looking at financial strategies to protect themselves - if they haven’t already done so.

She says: “During the decade prior to the GFC, even when interest rates were rising, Australians were spending like never before – but thankfully there now seems to have been a shift to borrowers being more aware of the implications of their spending and the options available to them.”

“However, despite this trend, it is inevitable that there will still be some who will be caught short as more rate increases occur and as with planning for anything - protecting your position is the key.” she adds.

Montgomery says for many mortgage holders, now is a good time to do an audit of their home loan and its features and determine whether it is still providing them with the flexibility they may need in the future. 

“It’s a good time to see if you can negotiate a better rate with your lender and if that’s not possible, consider shopping around for a lender with a more valuable service proposition.  This even applies to first home buyers who are considering different home options – don’t just buy the loan, buy the service as well,” she says.

Montgomery says in the current climate of rising rates there are several things that each category of borrower should also consider:
 

OWNER OCCUPIERS:
• Always allocate more funds for your current mortgage repayments which will give you breathing space for rate rises, as well as providing a slush fund for any necessary works you may have to carry out on your property.
• Limit discretionary spending, particularly during the festive period when budgets can blow out.

FIRST HOME BUYERS:
• Hold off on purchasing everything new to go with the new house and instead acquire household items as you can afford to pay for them – preferably in cash. Don’t rack up additional debt if you don’t need to.
• With rental demand still high and provided your living circumstances allow for it, consider taking in someone to rent a room and help you pay your mortgage.

INVESTORS:
• Don’t take it for granted you will always have tenants to help you pay the mortgage – have a plan B ready in case the property is untenanted for any period such as having funds set aside to continue paying the mortgage or moving in yourself if your situation allows for it
• Remind yourself that repairs and maintenance costs are a necessary part of owning an investment property so allocate for them in your annual budget and remember they are tax deductible and will over the long term add value to your property.

* Monthly repayment figures based on an average $300,000 principal and interest standard variable loan taken out over 25 years.

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