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How To Budget For Interest Rate Rises


With the RBA announcing yet another increase to the cash rate, learning how to budget for these hikes has never been more important for Aussie homeowners. 

After keeping interest rates firmly anchored at 0.1% for more than a year, the Reserve Bank Of Australia has finally begun the mammoth task of unwinding its pandemic-era cuts in line with soaring inflation. Although the 25 basis point increase announced in May was expected to be the first of many, June’s cash rate update has still managed to catch more than a few Australians off guard. 

In a move that took many by surprise, the Reserve Bank has increased interest rates with a 50-basis-points or half a percentage point hike, taking the cash rate target to 0.85% – a figure well ahead of most economists’ expectations and predictions. Although the exact amount payable on home loans will vary depending on the type of loan product and interest rate setting, Westpac has already passed the increase on in full to its customers. 

In addition, forecasts from the ASX predict some pretty hefty increases to the cash rate by the end of 2023. These predictions factor in an increase in the Reserve Bank’s cash rate from 0.10% to 3.5% by June 2023, which is enough to push up the standard variable mortgage rate from around 2.25% to 5.65%. Like all things, knowledge is power – and it’s important to take steps now to protect you and your home loan for the future. 

Three Ways To Protect Yourself From Interest Rate Hikes

When speculating about potential interest rate rises in the future, it’s important to keep in mind that interest rates are essentially market prices, which means they are a function of what can be broadly dubbed a case of supply and demand. 

Although there are a wide variety of factors that contribute towards determining the cash rate, the resilience of the economy and high inflation have been identified by the RBA as the primary reason for the rapid increases. 

While millions of Australians may already be feeling anxious about the rising cost of living, the best way to quell this type of anxiety is to make a plan, and to build a buffer. As such, learning how to budget specifically for rising interest rates is pretty valuable information. The best part? There’s no better time to start than now. 

Home Loan Health Check – Before you fall prey to panic, it’s important to remember that there’s an industry expert ready and waiting to help: your mortgage broker. Before making any big financial decisions based around rising interest rates and how to budget for them, take a trip to your local broker to see what their thoughts are on your current loan structure, features and benefits, and even lending institute.

Assess Your Budget – Start by establishing a clear budget so you know exactly how much disposable income you have coming in each month. If you already have one, factor in your mortgage repayments, debts, taxes, and necessities, plus make forecasts on how much extra you might need to pay in the event of an interest rate rise. This way, you’ll be better prepared and not caught off guard when it inevitably happens again in the future. 

Make Extra Repayments – Making extra repayments to your mortgage or syphoning off extra money into your offset or redraw facility could pay dividends in the long run, especially if your current interest rate is sitting lower than what it traditionally would be. Even if you don’t have access to an offset facility, now is the time to set extra funds aside to give yourself a buffer fund. In simple terms, getting ahead with your mortgage is one key way to avoid future stress.

Instead of trying to navigate rising interest rates on your own, keep in mind that there’s always a unique industry professional who’s ready to help. A mortgage broker acts as the ‘middleman’ between a lender and a borrower, and handles the time-consuming process of securing the loan and gathering the considerable paperwork involved. Therefore, partnering with the right one can be the secret to unlocking a less stressful mortgage experience. 

Your Guide For Navigating The World Of Home Loans 

With a background in banking, finance, business development and project management, there’s no better advocate to have on your team than Nikki Berzin. As a fully qualified mortgage broker and director of Cherry Lending & Finance, Nikki is passionate about all things finance, and empowering her clients with the tools to hit their property goals is what she does best.

If you’re looking to get into your first home, purchase an investment property or even want to look at your options for refinancing, the first step is starting the conversation. Get in touch with Nikki today, or call her directly on 0427 374 155 to bring your mortgage dreams to life.

Disclaimer: Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product.  Subject to lenders terms and conditions, fees and charges and eligibility apply.

Credit Representative 499652 is authorised under Australian Credit Licence 389328.