Five ways to manage home loan interest rate rises


It was inevitable that the Reserve Bank would eventually raise the cash rate from the record-low level to which it was reduced as an emergency response to the pandemic, and it certainly feels like the increases are coming in hot.

Today’s RBA announcement is the fourth consecutive increase this year and sees the cash rate increase by half a percentage point from 1.35% to 1.85%. 

Despite the subsequent rise in home loan rates, they remain low by historical standards – and will probably still be low even when we get to the end of this ‘tightening cycle’.

That said, it would be prudent to take steps now to make sure you can cope with higher interest rates. There’s no sugar coating it, adjusting to higher interest rates isn’t going to be fun but it doesn’t need to be painful either. Here are five suggestions:

1.  Review your last 12 months of bank statements and credit card statements, calculate your average monthly income and expenses and consider any discretional spend you can do without or simply reduce. This isn’t about going cold turkey on coffee or avocado on toast – it’s about reducing wastage. For example consider things like cancelling unused or underused streaming subscriptions or Apps.

2. Look for ways to increase your income. Are you overdue a salary re-negotiation? Is doing more overtime an option? Depending on your interests and situation you could possibly start a side hustle or rent out a spare bedroom.

3. If there’s one thing the Covid years have taught us it is the importance of re-evaluating what’s really important. Reducing expenses can feel limiting in theory but re-framed into deciding what means the most to you might help you to decrease your spending. A simpler life (and expenses column) might mean socialising more at home rather than out, buying less stuff and travelling locally rather than overseas. It’s different for everyone but frame your review with a ‘less is more’ lens and see where you end up.

4. Pretend your home loan rate is 1.50 percentage points higher, and pay the difference into your offset/redraw account or a separate savings account.

5. If it’s been some time (at least 18 months or more) since you reviewed your home loan you may be in a position to refinance to a lower-rate loan so future rate rises start from a lower base.

Of course, if you need assistance with any of the above suggestions or would like an insight into better home loan options available to you, please get in touch with your Green Finance Group broker.

You can also check out our home loan calculators should you wish to check on your updated repayments or how much you can afford to borrow.