How Can Borrowers Benefit, Even When Rates Go Up?

Two of the major banks are forecasting two rate rises in 2018. How will borrowers cope when more of their household budget is needed to pay-off their home loan?

Economists at the NAB and ANZ are now predicting there will be two rate rises next year, the CBA is predicting one rate rise.

It has been 82 months since the Reserve Bank increased its cash rate. When interest rates do rise, borrowers are going to have to consider how they are going to manager when their home loan payment eats into their disposable income.

Borrowers who have investment properties now have extra challenges as regulatory pressure is forcing up investment rates. Yes, they are paying more interest. This can be offset against the income derived from the property, thereby potentially giving them a larger tax rebate due to the increased interest expense they can claim.

Pressure from the Reserve Bank plus the Australian Prudential Regulation Authority (APRA) may well impact adversely on some household budgets.

However, there are some innovative lending policies out there that can significantly reduce loan repayments.

Some lenders will finance investment loans at the lower owner-occupied rates – so long as the borrower cross-collateralises their home with their investment property.

Fixed Rates should be considered as your repayment will stay the same, for the fixed rate period, should variable interest rates rise.

Fixed Rate loans are becoming more flexible with some allowing additional repayments, conditions may apply.

Some also allow the borrower to redraw any additional repayments they has made. 

Be aware, you may incur a penalty should you repay the loan in full during the fixed rate period.

Whilst rates are now low, borrowers should pay extra on their home loan each month. When interest rates do rise, the impact on their disposable income will be lessened.

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