With the cash rate now sitting at 1.85 after a fourth consecutive rate rise in as many months, many Australians would be forgiven for being concerned about the increase in mortgage repayments.
It’s a far cry from Phillip Lowe’s bold assessment in 2022 that Australia wouldn’t see a rate rise until 2024. However, in a rising interest rate market, there are numerous strategies or ‘levers’ that we can pull to reduce their impact.
Get your property valued:
· If you are a homer owner, our recommendation is to get a current valuation of your property.
· Prices rose by 20% across the country from 2020 to 2022, therefore homeowners are sitting on greater amounts of equity than ever before.
· Lenders are now offering lower interest rates dependant on your Loan-To-Value ratio (LVR). For example, Macquarie offer a 0.1 percent discount for properties valued under 60% LVR. · Therefore, if your property has grown through the covid period, you may be able to refinance to another institution (at a lower LVR) and reduce your current interest rate.
Refinance to a lower rate and take advantage of ‘Cash Back’ offers:
· Depending on your individual scenario, it’s highly likely that another lender can offer a lower rate on your home loan.
· For example, Ynance refinanced a client to another ‘Big 4’ institution and secured a drop of 0.75 in their variable interest rate with an additional $2000 in cash back.
· This will save the client approximately $3500 for every year of the loan term, irrespective of their savings in an offset account.
For Investors, change your loans to ‘interest only’ repayments:
· Cash flow is ‘king’ in a time when interest rates are rising, therefore restructuring your investment property loans to ‘interest only’ can assist in mitigating against multiple rises in the future.
· Interest only repayments are historically lower in value, therefore providing more cash flow from the rental income.
· Additionally, interest only repayments are fully tax deductible and consequently there are no tax benefits for paying principal amounts off a home loan (for investors and owner occupiers).
· It’s a common technique for investors to pay interest only repayments for multiple years.
Utilise an offset account:
· Explore options to change the structure of your home loan by requesting an offset account feature.
· Directing your savings, salaries and all income into an offset account can reduce the interest payable on the home loan.
· For example, if you had $50,000 in an offset account sitting against a $500,000 loan. You would only pay interest against $450,000 of the loan amount. This reduces your monthly interest repayment considerably.
Request a call back from a lending specialist.
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