With inflation being ‘sticky’ (this is the key word in recent economic reports), a lot of forecasts on what the RBA’s position in regarding changes to official cash rates is now changing. Only a few months ago, it was being hinted that interest rate reductions could come in July/August 2024 and then perhaps another easing in November/December 2024. This is now being repositioned to be considered a hold position for a few more months yet with interest rate (potential) reductions now coming in 1st or 2nd quarter of 2025.
This will continue to keep pressure on household budgets – regardless if you have a loan or not as everyone is impacted by higher fuel prices/groceries/utilities at present. Home mortgage owners and investment property owners will need to continue to carefully assess their incomes and outgoings to ensure that they have the cash flow to meet commitments or have enough savings to meet any shortfalls.
Ways to look at reviewing your finances – look to pay off small credit card/zip pay debts with any cash savings as this will in turn free up further cash flow to be channelled back into savings – don’t go and buy more stuff and go back into debt!! Look at refinancing car or personal loans to reset timeframes – yes it may add an extra year or 2 onto your loan, but it could free up some much-needed cash flow in today’s pressure needs.
Consolidate loans into your mortgage, again this can add long term debt to what was short term purchases, but with a sound debt reduction strategy to complement a revised budget and cash flow plan this can be extremely effective.
With investment loans if you are paying Principle and Interest, can this be changed back to Interest Only for a period of time until yours or the economic climate changes and you can review your wealth strategy. No one wants to sell their investment property to only find out that after 6 months if they could have only held on that they would have been ok and not derailed long term wealth opportunities.
Alternatively call and negotiate with your bank. A decent home loan interest rate can be around 6.04-6.1% these days. So, if you are paying more than this then it could be time to pick up the phone for that 5-10 min chat and negotiate a better rate for yourself. There are a couple of lenders, although reducing rapidly now, that did have some cash back incentives that if you moved your loan to them, they would offer a decent wad of cash for coming over. FYI – I did this very thing this month, tried to negotiate an already pretty competitive rate with my existing lender which they wouldn’t go any lower on so I said “Bank XXX” was offering a $3,000 cash back if I moved to them – so if they wouldn’t sharpen my rate then they should offer some kind of incentive to stay. After 2 minutes on hold they came back and said they would give me a $2,000 cash back to stay – me being me said that wasn’t good enough and I negotiated it up to $2500 to stay with my existing lender. This money will be deposited into my offset account in the coming weeks once the process the back-end part of my call. So, it pays to review your mortgage statement when sent out to you monthly, quarterly, or half yearly, and just do a quick google to see if the rate you have is even remotely close to what they advertise on their websites – you’d be surprised at how banks over time sneak up what you’re paying on you compared to what they advertise is their rates available. Keeping on top of your finances and being well organised isn’t hard, it’s just being aware of what you may be entitled to and keeping an eye on things as you go.
Written by Aaron McInnes
Financial Planner | Mortgage Broker