What The RBA Cash Rate Rise Means?
The Reserve Bank of Australia has today raised the cash rate from 0.1% to 0.35% after having slashed it to 0.1% in the midst of the pandemic. What does this mean for you? That depends on your situation.
Retirees
Good news for you, an interest rate rise will likely mean some more interest paid on your bank savings and term deposits. This will be welcome news to most retirees who have been earning essentially nothing on their cash. While you may be earning a little more than nothing now it is still important that you have exposure to growth assets to fight the effects of inflation.
Pre Retirees – Home paid off
Your life may not really change. You should keep following your retirement plan and investing your money for retirement. If this includes investment property the interest rate on any debt you hold will rise. If this does not you should be largely insulated from the effects of rate rises.
Mortgage holders
Mortgage rates are going up. Now is the time to tighten your belt and throw everything you can at your mortgage.
If you have access to an offset facility you might want to look at paying as much into it as you can. If you don’t have an offset facility and your bank offers you a redraw you can use this. Getting ahead of your mortgage has two effects. Firstly, it disproportionately reduces the amount of interest you pay over the life of the loan through a thing called loan amortisation. Secondly getting ahead of your loan will give you some breathing space if you find you are struggling to meet your repayments later down the track.
If you do not have an offset or redraw facility you may want to look at refinancing to an institution that will allow this. Please get in touch with your local mortgage broker if you are considering this path to further discuss your options.
Finally if you have fixed a portion or the whole of your loan you have a grace period from interest rate rises, however, you should be preparing for when your fixed rate ends. You may look to implement the advice above if you can or save extra money to throw at your mortgage when your fixed rate ends.
First home buyers
First home buyers will likely be able to borrow less money as rates go up. Your only course of action is to keep saving. Keep in mind that rates may continue to rise and try not to borrow more money than you can afford. Patience is the key here. You may want to look to see if you have access to any government grants and schemes aimed at assisting people to get into their first home.
