Incredibly, it was only in May last year that the RBA increased the cash rate for the first time since 2010.*
We have now seen a record-breaking string of increases that have risen us to the highest cash rate in over a decade.
While this is far from the highest the cash rate has been, the longer-term low interest rates have contributed to much higher property purchase prices making the impact of these increases acutely more painful.
Members on fixed rate home loans have been spared much of the pain of interest rate increases to date, but when their fixed rate term ends, they will effectively encounter every rate increase at once. It was what some economists are terming the ‘Fixed rate cliff’. That is, rather than going up the long interest rate hill of our members on variable loans, they will confront a straight upward climb.
In mid-2021, MOVE was offering a 1.89% 3-year fixed term, with other terms all sitting in the low 2% mark. When these terms end, there will be a significantly higher jump in repayments. Preparing for this ahead of time will help transition this hurdle successfully.
The first thing you can do, regardless of when your fixed rate matures, is to increase your repayments now#. Not only will this allow you to adjust your spending habits to fit your new budget ahead of time, but the additional payments could also become a source of additional saved funds to help meet your loan repayments once they do increase.
Use the loan repayment calculator on our website to estimate what your repayments will be based on current rates. If you can, start making repayments at that level now, or at the very least, increase them as you can.
As your fixed term approaches the end, consider if you would like to agree to a fixed rate again or if you will stay on a variable rate. We will be in contact as your fixed rate term is coming to an end to discuss your options, but you should feel free to contact one of our lenders if you want to get to this discussion early.
If you are concerned about your ability to make your repayments at the new level, it is critical that you have that discussion with us as early as possible. We appreciate that a hardship conversation can be challenging, but the earlier you contact us, the easier it may be to find a solution to assist you.
For personal support, there is also the National Debt Hotline. This is a service that provides free financial counselling. They are available on 1800 007 007 or at ndh.org.au
This blog post is for general information purposes only and is not intended as financial or professional advice. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product or other professional advice. You should seek your own independent financial, legal and taxation advice before making any decision about any action in relation to the material in this article.
* https://www.rba.gov.au/statistics/cash-rate/
# MOVE Bank allows for additional repayments of up to $10,000 on a fixed loan over the fixed rate term.
