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While the Reserve Bank of Australia has recently indicated no short-term rise in interests rates, most economists will tell you not to adopt a set-and-forget approach to debt management and lending structures.
Things can change quickly in the open market and many are speculating a rise in interest rates, despite assurances from the RBA. For homeowners, it’s time to take another look at debt management – especially housing debt management.
Paying debts can be stressful specifically if your income is not increasing and your expenses keep growing. Moreover, if you are borrowing at a variable interest rate, there is a high possibility of your interest rate increasing.
In that case, it is essential for you to have strategies that can help you handle interest rate changes. You can start with preventative approach and corrective plans to manage interest rate changes. To find out how you can manage interest rate changes, please read below:
You might have already borrowed, but if you have not and if you are planning to cut down on your interest rate you should budget yourself beforehand.
An easy way to do that is to list down all your expenses and your income and assess what you’re left with and borrow accordingly.
Assess your finances
If your spending is becoming too stressful then you should assess your financial situation by asking yourself few questions:
Are we going to be able to sustain the mortgage payment with the income and expenses we have right now? It is also a good idea to assess the impact of interest rate adjustments ahead of time. Using an online calculator to draw up various scenarios will give you an idea of how interest rates are going to impact your household budget.
Can we currently cut down on any expenses?
Can we cut down on any non-mortgage expenses to improve our situation?
By asking these questions, you will be able to assess whether or not you can sustain your debt and if you should reduce your expenses or change your borrowing habits, loan type because there is not going to be a significant increase in your income.
When you are borrowing or if you are planning to shift from a variable cost to fixed cost then you should assess what other options you can find.
One way to assess would be to call your bank or call different banks and ask them for their rates on mortgage loans.
This way you will find out if you are getting a competitive rate from your bank, or if you can choose another option to reduce your mortgage cost.
Do your Research
The bottom line is before borrowing or while going through any financial hardship, do your research. Know what questions need to be asked so that you can weigh up all possibilities. Some banks offer lower interest rates on higher loans, and some banks offer the opportunity of combined investment and home loans.
If you have done your research well, you are likely to make a smart and sustainable financial decision.
You could consider all possibilities yourself, cut down on non-mortgage loans, i.e., credit card bills, etc.
But seeking professional help wouldViews and opinion disclaimer
The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice’s position and are not to be attributed to RI Advice.
be extremely beneficial as an expert would have the knowledge of the market and the outside perspective that you could need to resolve your problems.
To live a stressless life with a secure future, it is essential to keep your financial home in good shape.
If you are borrowing without checking the possibility of interest rates increasing, then there is a high possibility of you remaining stuck in a vicious cycle of borrowing.
Therefore, before thinking about borrowing take some preventative measures and borrow smartly according to your income and increase in your income projections against the forecasts of an increase in interest rates.
General Advice (Tax) Warning (Australia)
This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice and consider a Product Disclosure Statement.