On Tuesday, October 4, the Reserve Bank of Australia (RBA) increased the benchmark cash rate by 25 basis points to 2.60%. The RBA raised its cash rate for the sixth consecutive month, but the hike was less than what the markets had predicted.
Many people are surprised by this action because it was widely believed that the RBA would increase interest rates more quickly to reduce inflationary pressures. (source: aljazeera)
Businesses and consumers alike, who have been trying to adjust to rising living expenses, are likely to welcome the RBA's decision to take a more gradual approach. Although it is too early to say whether this action will effectively control inflation, individuals who have been feeling the pain now get some relief.
RBA Governor Philip Lowe said in a statement that "the cash rate has climbed considerably in a short period."
"Reflecting this, the Board decided to raise the cash rate by 25 basis points this month as it analyzes the outlook for inflation and economic growth in Australia," he continued. "The Board anticipates further raising interest rates over the next period." (source: reuters)
If you have a variable-rate mortgage, your interest rate will most likely rise soon. On the other hand, if you have a fixed-rate mortgage, your interest rate is likely to remain the same for the time being.
For instance, your monthly repayments will rise by roughly $800 if your interest rate is variable since this is based on a $620,000 average home loan.
Although this may seem like a lot, keep in mind that variable rates are frequently lower than fixed rates. Even though your monthly payments will be greater, you will still end up saving money in the long run.
Your situation will determine how to react to a rate increase. Nevertheless, the following general advice may be useful:
Try to negotiate with your current provider. If you've been a good customer and have always paid your bills on time, they may be willing to work with you to keep you as a loyal customer.
Research other providers. Look around your neighbourhood to see if there are any less expensive possibilities because by transferring to a new supplier, you might be able to save money.
Spend less. If necessary, reduce another spending to make room for the higher rate. For example, you might need to make a few adjustments if money is limited in order to pay the rising charges.
The rate increase doesn't have to be permanent. If you're struggling to handle the higher payments, talk to your provider and see if there's any way to temporarily lower your rate until you're back on your feet.
If you're facing a rate increase, don't panic. There are several ways to handle the situation and with a little effort, you should be able to find a solution that works for you.
You can also get in touch with your trusted mortgage or lender to help you with your situation!