What does the Increased Cash Rate mean for you?

Written by Hamish Ferguson

August 5, 2022

What does the Increased Cash Rate mean for you?

increased cash rate

Its impact on Australians with home loans.

The RBA has increased the official cash as of October 2022 6 times. This has been very topical for most Australians.  

Australians with a home loan may feel a little stressed due to the increase in their loan repayments. It is also impacting renters due to landlords’ confidence to put the rent up on their investment properties. As a result, many areas have very low vacancy rates for rentals.

The Reserve Bank of Australia’s (RBA) cash rate influences banks’ interest rates on their home loans. Interest rate increases can make you feel helpless over your debt levels and stress. Yet these adjustments have a purpose and can also provide long-term benefits.

The RBA reviews the monthly cash rate to safeguard Australia’s economic stability. Significant lenders will match the cash rate regarding interest rate fluctuations.

The declared inflation for August was 6.8%, down from the prior month of 7%. Whilst this is the highest recorded since 1990, it is much lower than the UK or US is experiencing, with both countries sitting over 9%. Nevertheless, inflation is a significant factor contributing to the cash rate increase. As a result, the RBA is looking to cool inflation and reduce rising essential item prices. 

Property prices are dropping.

Property prices are also closely monitored, with some commentators expecting a reduction in some areas of between a 10-15% drop in the average home price out to 2024*.

financial stress

A promising future?

The state of the economy is promising for Australians. Our local economy grew by 0.9% in the June Quarter. The RBA expects we will finish the year with just over 3% growth. Wage growth also seems to be increasing across various job sectors, and overall, the economy is on a positive trajectory.

There are options to counteract these impacts. 

Despite these hopeful statistics, it’s normal to be wary of rising home loan repayments and the repercussions. Fortunately, we, consumers, have options to counteract this. For example, you can utilise variable or fixed loan rate options and scour many lenders to find the most appropriate loan levels for your situation.

It is essential to track how your lender manages cash rate changes and where that will leave you as the person paying the interest repayment. However, this process can be time-consuming and made more difficult by fees, charges, and the flexibility offered by different loan products.

It is essential to consider all these factors alongside the interest rate. An experienced professional can be an invaluable source of advice and guidance in these situations.

The RBA expects that household savings will decrease over the next season. Accordingly, households must stay on top of any changes to life’s expenses.

A helpful calculator

There are lots of helpful loan calculators to help you visualise what these changes could look like for you. For example, Moneysmart.gov.au has a great, easy-to-use mortgage calculator.

For example, we have found that implementing the expected 2% interest rate rise on a $600,000 home loan from 3.5 to 5.5% for 25 years will increase your interest repayments by $250 per week.

Help My Wealth can help you stay on top of your expenses. 

It can feel a bit daunting and anxiety-inducing with the interest rates rising. Fortunately, help is available! Help My Wealth clients have found expert advice to help them navigate this changing economic environment from an experienced professional Financial Adviser or a Mortgage Broker. It has saved them time, money, and in particular, a lot of stress and anxiety.

Proactive budgeting systems that utilise artificial intelligence are the most successful methods of budgeting. Current trends have highlighted this. These systems ‘learn’ your spending habits, turning hours analysing figures into minutes. Ultimately, this assists you in reaching your financial goals more quickly.

At Help My Wealth, we are about helping people create realistic budgets. We help our people reach their savings goals quickly and prepare for changing cash flow environments. So, reach out and contact us today, and we can show you the latest generation of the eSmart budgeting program and how they will work for you.

 

* According to Dr Shane Oliver, Head of Investment Strategy and Economics and Chief Economist, AMP

two women going through expenses

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Phone

0240141949

Email

info@helpmywealth.com.au

Address

Suites 1 & 2 Lake Macquarie Fair, 46 Wilsons Rd, Mount Hutton NSW 2290, Australia

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