Rates Rise to 4%. Survival Tips.
3rd March 2010 Posted by: Here are some financial tips to help now that rates have risen to 4%.
Melinda Arko - The Queen of Cash Flow - gives you some tips about how to make ends meet now that the Reserve Bank has lifted rates to 4 per cent.
It came as no surprise!
Well there certainly were no surprises today when the Reserve Bank of Australia (RBA) raised the cash rate .25% up to 4%. ANZ, St George and surprise the CBA all reacted very quickly to the announcement and raised their rates by the .25% increase. This means that the median standard variable home loan rate will be 6.8%.
What does this mean for borrowers?
Based on an average home loan of $300,000 over a 30 year terms borrowers will have to find an extra $50 per month to cover this increase. The last four rate rises since October 2009 of 2% has resulted in borrowers having to find a total of $200 per month. For a large portion of the population this will hit the household budget considerably.
Tips to combat interest rate rises
· Review your loan to ensure your products still match your needs
· Consider fixing a portion of your loan
Changes in interest rates only affect standard variable rates. When rates are rising, you can protect yourself
from future rises by partially fixing a portion of your mortgage. Since there is also the chance that interest rates
may decline at some future time, you may wish to keep the fixed rate period to a few years, so that you can
renegotiate the fixed interest rate.
· Consider using an Offset Account
With a mortgage offset account you can deposit savings you have into it. The balance you have sitting in the
offset account offset against the balance owing on the mortgage. This helps you save interest.
For example, you may have $150,000 owing on your mortgage and you also have $10,000 deposited in a
mortgage offset account. In this situation, the mortgage interest is calculated on $190,000 rather than
$200,000.
This option also gives you a tax benefit, because you’re actually saving money on your mortgage payments
rather than earning assessable interest on a savings account. Note that when you use this option, you must
remember to check the terms, as not all lenders offer 100% offset accounts.
· Adjust your budget to reduce your expenses
Time to create new budget or revisit your current budget to plan expenses more carefully. It will mean reducing
your discretionary spending, like buying takeaway food, and coffees.
For discretionary spending, set and keep within a weekly limit and withdraw cash enough only for a week.
Limit credit card use to non-discretionary spending only, such as utility and phone bills. Shop around for better
deals.
· Match your payments
Match your wage payments with your mortgage payments. That is, if you get paid weekly, schedule your
mortgage payments weekly. On the other hand, if you get paid monthly, pay off your mortgage monthly. The
idea is that you avoid having your money sit in a savings account earning little — but taxable — interest for
one or more weeks each month. It also helps you to regulate money in and money going out and ensures your
mortgage is paid first.
Disclaimer: No investment advice provided to you. Information provided does not take into account your particular investment objectives, financial situation or investment needs. You should assess whether the information is appropriate to your particular investment objectives, financial situation and investment needs. You should do this before making an investment decision on the basis of this information. You can either make this assessment yourself or seek the assistance of any adviser.
