Experience has taught me that it is always wise to have a back-up plan just in case things change. And there’s one thing we know for sure, and that is that things will change at some stage. This is why I recommend clients have a plan in place for when interest rates move upwards, even though last week the Reserve Bank of Australia once again decided to hold the official interest rate steady and unchanged at the record low level of 1.50%.
Whilst this is good news for home owners and investors paying off a mortgage, the consensus amongst many financial experts is to expect some rises in official rate in 2017.
In addition to this prediction, if we look back over the historical data of official rates in Australia since 1990, we can see that the average rate during this period has been around 4.78%, with a scorching high of 17.50% in early 1990, right through to the record lows of today’s financial environment. Which means the critical question everyone with a mortgage needs to ask themselves is…
What’s my plan if there is a movement in rates?
Now, this may seem a sobering question if it’s one you haven’t considered before, however by asking this one key question you can be prepared and put yourself ahead of the game by having a clear strategy in place before the rates shift.
So, what’s your strategy moving forward?
The simplest and most effective strategy to implement, is to get your financial house in order. This can be done in a number of ways, and below I’ve outlined five important steps you can take as part of your overall financial management plan.
Conduct a Current Financial Check Up
Before embarking upon any change in your financial behaviours or creating a plan for the future, it’s important to know where you are now. This means that it is a highly effective use of your time and energy to get a clear perspective on your current circumstances. Take some time out to review and assess your current financial position as accurately and honestly as possible and consider using a personal budgeting tool to help you manage your funds.
Pay Off High Interest Credit Card Debt
Ideally if you use credit cards you will be paying out your balances in full each month to avoid the interest on balances. However, if you do have any outstanding credit card debt, set up a plan to begin paying down these balances immediately. Your aim should be to pay these down and clear up any of this type of debt as soon as you possibly can.
Ensure You Have Savings and Excess Funds on Hand
It is recognised that Australians have shifted from being a society of savers to a being a culture of high consumption, credit based, spenders. This has translated into many Australians now operating their finances without savings or excess cash at hand. Therefore if you have little or no savings put aside, now would be a good time to begin building at least a small amount of excess funds. This can be achieved by paying yourself first, around 10% of your income, into a separate account via a regular savings plan.
Consider Paying Your Mortgage Off at a Higher Rate
As interest rates have decreased on mortgages many of us have subsequently chosen to pay off our loans at the reduced repayment level. However, a great way to get ahead of the game and to keep yourself prepared for an upward shift in interest rates, is to continue to pay your mortgage at the higher, original repayment level.
Look at Your Current Mortgage and Speak with an Expert to Review Your Options
Perhaps your current mortgage structure no longer suits your current financial circumstances? In this case it would be beneficial for you to seek out some expert advice from a qualified Mortgage Broker to review your options. You may find refinancing and moving your existing loan to another provider could provide you with better conditions, lower rates and less fees or you may wish to consider changing to a fixed rate or redraw facility?
If you would like to know how you could be better prepared for a shift in interest rates, why not arrange a meeting with one of our qualified Mortgage Brokers to assess your specific situation? All appointments are obligation free and strictly confidential.
Contact us here to confirm a time or have your questions answered.
To your success, Champions,
Harry
