Cash Rate Increases and the Importance of a Mortgage Review

The cash rate has increased to 0.85%

With the recent interest rate rises, it’s more important than ever to review your current mortgage to determine the options available to you.

Here we go again! The Reserve Bank has raised the official cash rate (OCR) in consecutive months, this time from 0.35% to 0.85%.

The major banks are predicting further increases, with Commonwealth Bank forecasting a cash rate of 1.35% by the end of the year. That might sound scary, but strict mortgage serviceability assessments  means that most borrowers have a solid buffer to cope with further rises.

To further offset the impact of a rate increase, there may be other options available to you. These include:

Reviewing your budget

If your expenses have crept up since your last mortgage review, now could be a good time to see where you could tighten the purse strings, just a tad.

Use budget calculator

Consolidating debts

When the OCR rises, it affects all types of lending, not just mortgages. So, if you have other debts from credit cards, vehicle and personal loans, consider consolidating them into your home loan. You could stand to save on repayments and offset some of the impact of the rate rise.

Refinancing to a different loan

If rates continue rising across the board, why not start from the lowest rate and the best features possible?

Negotiating with your current lender or switching loans could get you a lower interest rate, allow you to remove unnecessary features and reduce your fees. On the other hand, there may be features you want to add that help you reduce interest on repayments, such as an offset account.

To book in a no-obligation review of your finances feel free to get in touch 

What does this increase mean for most borrowers?

Variable rates

 If you have a variable rate, your bank will typically pass that increase on to you. ANZ, CBA and NAB have already announced they will pass on the full 0.50% increase on 17 June, and Westpac will do so on 21 June. 

Fixed rates

Usually, if banks expect the OCR to continue rising, their fixed rates will be higher than their variable rates, and the trend we’re seeing right now is that the longer the term, the higher the rate.

Borrowing capacity

Early expectations are that this OCR increase could reduce most people’s borrowing power by around $40,000. If rates continue to increase, borrowing power will be further reduced.

Whats next

In periods of changing markets and interest rates, it’s always a good discipline to review your financial situation. If you have any doubts about your ability to handle further rate rises or how your borrowing capacity could be affected in the current market, please get in touch with me.

Chris White

Chris White

Dip.FMBM – Managing Director / Finance Broker

With a history in public sector finance and the finance industry, Chris knows money.

With your best interests at heart, Chris will help you better understand your financial choices. He will guide you through your financial options and explain what it all means. In plain English.

Plan Australia Business of the Year – 1 Loan Consultant – Western Australia 2020
PLAN Australia Business of the Year Western Australia 2020
MFAA 2021 Commercial Finance Broker Award State Finalist
MFAA State Excellence Awards Commercial Finance Broker WA 2021
MFAA State Excellence Awards Commercial and Equipment Finance Broker WA 2022
Contact Whiteroom Finance today for an obligation-free consultation.

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