Life with Rising Interest Rates

Right now, more than ever before, you should be paying a little more each month off your home loan. Why, you ask? Many mortgage holders have never lived in a rising interest rate environment, so this is a new world for them. For many who fixed their rates in the last year or so, the shock of the new interest rate when that fixed rate period expires will be a shock to the back pocket.

So now is the time to start preparing for the worst. We suggest that if you have a mortgage you go onto a mortgage repayment calculator – enter your loan amount, the remaining term, and pick an interest rate that might sound scary, but should be sufficient for what may be to come.

Then we suggest that you either compare this to your current repayment and see what the difference is. This is the amount that you need to plan for a way to either save or pay off your mortgage each month – you could either do this as a ‘one off’ increase or sneak up on it over a few months as you find savings in other areas.

There are a lot of external influences on interest rates at present – the Ukraine war, cost of living, floods, the lagging supply chain, fuel prices, and labour supply being just a few. Will these get worse or better? Only the brave would speculate – 2 months ago economists and the Reserve Bank were predicting a flat rate into the future. Now many are saying that rates will keep going higher for the next year, others are saying that they will stabilise towards the end of 2022 and then start easing, some eternal optimists are saying that we have seen the worst of the rises.

Time will tell what will happen.  But our advice? Plan and prepare for the worst, then you can only be a winner. Can we suggest something else as well? Stop listening to the news, the ‘talking heads’ are sensationalising what is a fairly normal event. Yes, it will get tough if you have a huge mortgage, but if you were honest in your loan application you were assessed at a rate higher than what most economists are predicting; so as long as your lifestyle hasn’t changed or you have taken on extra debt you should be OK – granted, it might be hard until things like food and fuel prices stabilise, we understand that.