In May 2022, the Reserve Bank of Australia (RBA) raised the cash rate by 25 basis points, marking the first rate rise since November 2010 and the beginning of the most aggressive tightening cycle in the country’s history. With the cash rate having now risen by 325 basis points, anyone with a loan is concerned with how to manage their growing monthly repayments.
Rising rates have had a significant impact on Aussie investors. Fortunately, there are some simple strategies that you can implement to get on top of your repayments.
Review your rent.
The combined average unit and house rents in Australia’s capital cities have increased by over 35% since this time two years ago. If you haven’t reviewed your asking rents in the last year, it’s very likely you’re not achieving sufficient yields on your investment. An increase in your rental income could help offset rising monthly repayments and ease the pain caused by rising interest rates. A good place to start is by speaking to your property manager.
Speak to your broker.
Your broker has access to various lenders and loan products, so they’ll be able to shop around for competitive rates on offer. They can also help you evaluate your options and help you choose the best loan products to suit your situation.
Switch to interest only
If you’re currently paying principal and interest (P & I) on your loan, switching to an interest-only (I/O) loan will allow for cheaper repayments and help you ride out the wave of higher interest rates. You can always switch back to paying P&I once you’re comfortable with the interest rate you receive. If you’d like to know more about the differences between I/O and P & I, click here.
Budget and forecast.
The whole idea of raising interest rates is to limit consumer spending, so do just that! Limit your spending! Although it’s much easier said than done, creating a budget, and sticking to it can really help you get on top of your monthly repayments. Assess your situation and foresee the repayments you have coming up, then budget accordingly. If you’re coming off a fixed rate this year, make yourself aware of how much more money you’ll need for repayments once your fixed rate period is over. You can then create a budget to ensure you’re well prepared.
It’s important to think logically and not be swept away by all the talk in the media. If you want to deep dive into the current economic environment and get an insight into where we think interest rates are heading, register for this week’s POP up: Interest rates, the economy and property 2023.