Household budgets around the country are feeling the brunt of five back-to-back rate hikes. And we’ve been warned more are on the way. But just how long does it take for each rate rise to impact your monthly mortgage repayments?
As you’re probably aware, in early September the RBA raised the cash rate to 2.35%.
It was the fifth cash rate hike in a row and the fourth straight double rate increase of 50 basis points.
In response, many lenders have increased their variable interest rates.
But thankfully, lenders don’t slug you with a mortgage repayment hike straight away – there’s always a little bit of lag time to help you prepare.
Just how long? Let’s take a look.
After the RBA hikes the official cash rate, your bank will (usually) announce its own interest rate hike from a particular date.
But this doesn’t mean your repayments will immediately increase when that day arrives.
Exactly when your rate rise kicks in depends on your lender, their policies and your home loan agreement, and your repayment schedule.
Lender notice periods for interest rate rises also differ from bank to bank – with CBA’s lasting 20 days, Westpac 30 days, NAB 32 days, and ANZ 30 days.
We’ll run you through a quick example.
Let’s say your monthly mortgage repayments are made on the 20th day of each month.
Let’s also assume the RBA increases the cash rate on October 4 next month, and you receive a notice from your lender on October 7 of a subsequent rate increase, with a 30-day notice period.
By the time October 20 arrives, you won’t be paying higher repayments, as the full 30 days notice will not have passed.
When that 30 days notice finishes on November 6, the daily interest rate you’re charged will increase to the new amount.
That means when your monthly repayment on November 20 rolls around, you’ll be charged at the new, higher rate (but calculated only from November 6).
But hey, at least you got a 44-day heads up from your lender – and it won’t be a full increase yet either.
By the time December 20 arrives, the repayment amount you’re charged will fully reflect the new rate.
If you’ve received your rate rise notice and your budget forecast is looking tight, rest assured there are steps you can start taking now to help ease the pain.
First and foremost, if you haven’t refinanced for a while, there’s a decent chance you could get a better rate on your home loan.
For example, let’s say you refinance your variable rate home loan this month from 5% down to 4.5%.
If the RBA raises the cash rate by 0.50% next month, and your bank follows suit, your interest rate will then be 5% – not 5.5% like it could have been if you didn’t refinance.
Another option is consolidating multiple loans – such as car or personal loans – into your mortgage to reduce your monthly expenses.
However keep in mind that, because home loans are longer, consolidating means you’ll pay more interest over the lifetime of the car and/or personal loan than you would have otherwise.
Similarly, you can consider refinancing to extend the term of your mortgage to help reduce monthly repayments.
Once again, you’ll end up paying more interest over the life of your loan (but hey, it could get you out of a pickle now).
Everybody’s situation is different. And we understand some of the ideas listed above might not suit your financial or personal situation – but there are others that could.
So if you’re worried about how you’ll meet your repayments in the months ahead, give us a call today and we’ll sit down with you to help work out a plan moving forward.
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