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The Reserve Bank of Australia (RBA) raised the national exchange rate to 2.60 at its October 2022 meeting, slow its pace by increasing by just 25 basis points rather than 50. Some economists predict that the RBA may have one or more rate hikes in the tank before pausing the cash rate to assess its effect on the Australian economy and inflation.
Following the rate hikes of recent months, interest rates above 4% are increasingly common for savings accounts and term deposits, while it is increasingly difficult to find home loans at rates below 4%. As rising rates could change the way Australians save, spend and borrow money, it may be worth taking some time to assess your own household budget.
Can you still get a low rate home loan?
This month of October, The major Australian banks quickly announced when passing on the recent increase in cash rates to variable interest rate mortgage customers. Of course, you may not feel the impact on your wallet for a month or more.
These rate hikes may also affect how much you can borrow, the maximum borrowing capacity of the average person with decreased by approximately 20%, or $134,500due to the previous five interest rate hikes, according to research from RateCity.
Risky borrowers mortgage stress may be able to consider refinancing with another lender offering a lower variable interest rate, provided you can meet the eligibility criteria (such as holding sufficient equity in your property):
Borrowers with fixed interest rates may be able to delay the bill shock until the expiration of their fixed rate period. As more of the ultra-low fixed rate deals of a few years ago come to an end, more homeowners and real estate investors may start to feel the pinch.
It’s always possible to lock in your mortgage rate to help keep your mortgage payments consistent, however, some of the lower fixed rates tend to be for shorter one-year terms:
How to grow your savings
Growing your savings may become easier thanks to the RBA’s cash rate hikes, with some savings accounts now offering some of the highest interest rates seen in years, especially for young people.
Of course, there are also some caveats to consider. To qualify for some of the highest interest rates on savings accounts, including those above the 4% mark, you may need to meet some fairly specific eligibility criteria, such as making regular deposits and not not withdraw. Others only offer the higher introductory rate for a few months before reverting to a lower savings rate. It’s important to compare savings accounts and find an option that fits your financial situation.
Term deposits may not be as flexible as some savings accounts, as you agree to lock in your savings for a fixed term in exchange for a pre-determined interest return. But if you value security for your long-term savings goals, the right term deposit could come in very handy under the right circumstances.