The Reserve Bank of Australia (RBA) has kept the cash rate low for a record 14 months in a row, but with the Global Financial Crisis (GFC) well and truly behind us, many are predicting a rate increase early next year.
The historic low rates were put in place to protect Australians from the GFC and also to encourage spending. Most people took the opportunity to buy houses. Many borrowed more than what would normally be advisable, while some stayed within their means but will still be open to ‘rate-rise shock’ when the time comes.
And that time will come. Some experts are predicting that the rate will remain steady for at least six months, while others are expecting an increase early next year.
Either way, as finance guru Noel Whittaker says, it will be a wake-up call to anybody with a home loan, and especially to anybody having problems making their payments now.
So, if you’re one of the thousands of households that will face the pain of repayment stress, how does Noel suggest you cope with managing your mortgage?
“If you have a mortgage now, I suggest you try to maintain payments at a minimum of $870 a month for every $100,000 you owe. This is based on a 15-year term at 6.5 per cent. This will give you a huge safety buffer if rates do start to rise, or if you get into financial stress,” he says.
There you have it. A simple tip to beat mortgage stress. How will you face increased repayments when rates rise?
Noel Whittaker is the author of Superannuation Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions.