RBA Lifts the Cash Rate to 4.60%: 6 Practical Ways to Ease the Pressure on Your Mortgage
On Tuesday 29 September the Reserve Bank lifted the cash rate by 0.25% to 4.60%. It is the fourth increase this year and the highest cash rate since 2011. For most variable-rate borrowers, lenders will pass this on within a few weeks, which means another lift in repayments before Christmas.
You cannot control what the RBA does. You can control how your loan is set up.
Here are six things worth doing this week, roughly in order of effort.
1. Find out what rate you are actually paying
Log in to your banking app and check the current interest rate on each loan split. Then look at what your own lender is offering new customers for the same product. The gap is often 0.30% to 0.80%. Lenders rarely move existing customers down on their own; the difference is sometimes called the loyalty tax.
2. Ask your lender for a repricing
Before you think about refinancing, ask your current lender to match its new-customer rate. This is a phone call or a form, not a new application. It works more often than people expect, especially if you have paid down the loan or the property has grown in value since you bought. If you would rather not make the call, a broker can lodge the request on your behalf and usually knows the pricing the lender will accept.
3. Put every spare dollar in offset, not a savings account
Interest on a home loan is calculated daily. Money sitting in an offset account reduces the balance interest is charged on, every single day. A savings account earning 4% pays interest that is taxed; offset savings at a 6% loan rate are worth more and are not taxed. Salary, tax refunds and emergency savings should all live in offset if your loan has one.
4. Switch to fortnightly repayments
Paying half your monthly repayment every fortnight results in 26 half-payments a year, which is one extra monthly repayment. It is a small change most lenders allow in the app, and it quietly shortens the loan and reduces total interest without changing your budget.
5. Check what you are paying for and not using
Annual package fees, redraw fees, extra offset accounts and credit cards bundled into a professional package all cost money. If you are not using the features, a basic variable product with a lower rate may suit you better. A quick line-by-line review of your loan statement will show what is being charged.
6. Decide whether a partial fix makes sense for you
Fixing part of your loan gives repayment certainty, but fixed rates already reflect where the market expects rates to go. A split loan, part fixed and part variable with offset, is how many borrowers balance certainty and flexibility. Whether it suits you depends on your cash flow, how long you plan to hold the property and your appetite for risk. This is a conversation to have with a broker rather than a decision to make from a headline.
When refinancing is worth it
If your lender will not reprice, or the loan structure no longer fits, refinancing is the next step. The maths is simple: the interest saved over the next two to three years should comfortably exceed the exit and setup costs. A broker can run that comparison across lenders in one sitting.
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This article is general information only and does not take into account your objectives, financial situation or needs. Consider whether it is appropriate for you before acting on it.
Mohit Gupta is a Credit Representative 562355 of Finsure Finance and Insurance Pty Ltd, Australian Credit Licence 384704.
