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What to do about rising interest rates?

Are interest rates going to continue to rise?

Economists believe that interest rates will rise, although the notes from the meeting in July by the Reserve Bank of Australia (RBA) revealing that the neutral real interest rate is 3.5% which is 200 basis points higher than the current rate of 1.5% will not be the reason just yet as it is not economically justifiable to have a neutral rate at this time.

Economists believe that the changes that the Australia Prudential Regulatory Association (APRA) has introduced to the banks to limit the amount of investor loans, interest only loans and to hold more capital will make it more likely that the banks will continue to increase their interest rates independently of the RBA.

This together with the governments new tax on the big 4 banks and Macquarie will put more pressure on interest rate margins and lead to additional increases to lending interest rates especially in the interest and interest only lending sectors.

What should I do?

  • Pay off your credit cards and personal loans as fast as possible if there is not a penalty for early repayment.
  • Change your repayments to weekly or fortnightly as most lenders calculate the weekly of fortnightly repayments as one quarter of the monthly loan repayments for weekly repayments or half for fortnightly repayments. This will mean that you make one more repayments per year and the increase is not so much so you don’t really miss it.
  • Put your tax refund on your loan.
  • Increase your loan repayments or otherwise put additionally money in an offset account to build up a buffer.
  • Look to refinance your mortgage and business loan to get a better deal.

 

Jack Walker

Loan Broker to the Aussie Battlers

 

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