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5 ways interest rate hikes could impact you

By ,| 3 min read

Earlier this month, the Reserve Bank of Australia (RBA) increased the official cash rate for the first time since 2010. Since then, lenders and deposit-taking institutions have started lifting interest rates accordingly.

But what does it mean for your finances? In this article, we explain 5 ways you might be impacted by rising interest rates.

1. Home loan repayments are increasing

Whether you already own your own home or you’re looking to buy a property, home loan repayments are going up.

Many mortgage lenders have already increased interest rates on their home loan products. For those who are currently paying off a variable rate mortgage, it’s possible that your interest rate has already risen by 0.25% – the same amount as the cash rate increase.

Borrowers on fixed rate home loans won’t feel the effects of interest rate hikes until their fixed term ends.

While some homeowners might be concerned about the impact rising home loan repayments will have on their wallet, research shows that many Australians are actually ahead on their mortgage repayments.

It’s also predicted that rates will slowly increase over the next few months, giving borrowers time to adjust.

If your repayments are becoming difficult to manage now that rates have risen, speak to your lender or a Home Loan Specialist for help.

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2. Repayments on debts like personal loans, car loans and credit cards are rising

It’s not just home loans that are affected by rate rises. Interest rates on other types of debt like personal loans, car loans and credit cards are lifting too.

This means your repayments are likely to increase. However, much like home loan interest rates, rates on these debts will rise slowly and in small increments.

If you are concerned about paying back various debts with rates on the rise, you might want to consider consolidating your debt into your home loan.

Debt consolidation involves bundling your existing debt into your home loan, so you only make one monthly repayment. Your consolidated debt will be charged interest at the same rate as your home loan.

Not only does this streamline your repayments, but home loan interest rates are typically lower than rates on other debts – so you can save money by paying one lower interest rate.

3. Earn more on your savings with higher interest rates

An upside to rising interest rates is that many Australians will benefit from a boost to their savings.

When the RBA raises the cash rate, this can have a flow on effect on interest rates across the board. This means not only do interest rates on debts go up, but so do interest rates applied to assets.

Because interest rates have been at record lows for the last 18 months, if you have a high interest savings account or a term deposit, it’s likely that you haven’t earned much interest in this time.

Some deposit-taking institutions have already started to increase interest rates on their savings accounts and term deposits.

While it’s likely rates will continue rising over the coming months, now could be a good time to compare how the interest rate on your savings account stacks up. Don’t be afraid to switch if you find a better deal elsewhere.

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4. Some investment returns are gaining as rates rise

If you own shares, you may be in luck as interest rates start rising in Australia.

This is because shares in certain industries and companies benefit from rate hikes, which can strengthen your investment portfolio.

For example, shares in industrial companies and retailers can perform well as the economy improves and interest rates rise. On the other hand, shares in sectors like real estate may soften, since the housing market has historically slowed down when interest rates were on the rise.

The latest statistics from Commonwealth Bank’s Household Spending Intentions (HSI) Index show that Australians are indeed spending less on home-buying and more on entertainment and travel. So, retailers in these sectors where Australians are spending more could see their share prices rise.

5. House prices could drop

Good news for prospective home buyers – the tide might be turning on house prices now that the cash rate has increased.

After years of skyrocketing prices, it appears the growth in dwelling values has started to slow in some parts of Australia, especially in major capital cities like Sydney and Melbourne.

While this has been the case for a few months now, it is possible that higher interest rates will help ease house price growth in the near future.

Why? Because with higher rates, borrowers won’t have the capacity to borrow as much as they have for the last couple of years. This can help to drive down house prices.

It’s important to note that other factors can impact the relationship between interest rates and house prices, like wage growth, for example.

But, if you’ve been saving up for your dream home, it might soon become more affordable.

Do you want to know how interest rate rises will impact your home loan? Our Home Loan Specialists are here to help. Book an appointment at a time that suits you.

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: home loan, interest rate, cash rate, official cash rate, rba cash rate, saving, debt consolidation

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# Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
Lendi is a privately owned and operated Australian business. Our mission is to change the way Australians get home loans by providing a faster, smarter and more secure home loan experience designed around the customer’s convenience and needs. Although Lendi compares over 1600 products (2,500+ products including feature and pricing variations) from more than 25 lenders, we don't cover the whole market or compare all features and there may be other features or options available to you. Lendi Group Pty Ltd, which is the ultimate holding company of the Aussie and Lendi businesses is owned by numerous shareholders including; banks such as CBA, 1835i (ANZ’s external venture capital partner) and Macquarie Bank, the Lendi founders and employees, and a number of Australian institutional investors and sophisticated investors including UniSuper.
*WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates are based on a loan amount of $150,000 over a loan term of 25 years. Fees and charges apply. All applications are subject to assessment and lender approval. Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
IMPORTANT INFORMATION: Loan terms of between 1 Year and 40 Years are available subject to lender and credit criteria. Maximum comparison rate will not exceed 14.99% (see comparison rate warning above). Any calculations or estimated savings do not constitute an offer of credit or a credit quote and are only an estimate of what you may be able to achieve based on the accuracy of the information provided. It doesn't take into account any product features or any applicable fees. Our lending criteria and the basis upon which we assess what you can afford may change at any time without notice. Savings shown are based on user inputted data and a loan term of 30 years. All applications for credit are subject to lender credit approval criteria. Top rates include lenders who are on our panel and are then defined by the circumstances provided by the borrower.
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