Prepare for interest rates rising sooner than expected: Finder.com.au
Looking overseas at the potential effect of the US financial situation, Finder.com.au’s Michelle Hutchison said that if America raises their debt ceiling, it could impact funding costs in the Australian home loan market.
Warning borrowers to prepare themselves for higher costs, Hutchison explained that if average variable interest rates returned to normal levels of 7%, borrowers would be slugged an extra $755 million of extra repayments collectively.
"Our lenders source about a quarter of their funding from offshore according to the Reserve Bank, so even a small amount of funding pressure will likely impact the cost of home loans as lenders would pass on the costs to borrowers,” Hutchison said.
"It's important for borrowers to be prepared for rising interest rates because it's only a matter of time before rates rise. And the US could be speeding this up much faster than we expected.”
If you’re looking to prepare for any potential rate hikes, she suggests the following tips:
- Reduce home loan costs as much as possible by comparing your home loan to other lenders’ offerings.
- For those looking to buy, factor into your budget a potential 2% increase in interest rates. For a $300,000 loan, this looks like an extra $400 per month.
- Consider fixing your home loan.
"Whatever the outcome of the US financial situation, interest rates will eventually rise to normal levels again so borrowers should be prepared with the right tools and review their home loan situation before it's too late,” said Hutchison.
You may want to consider reading Property Observer’s recent eBook about refinancing.
