Australians have just experienced the first interest rate hike since November 2010. Many homeowners have never had to face increasing mortgage repayments in the life of their loan, and with experts predicting that they’ll rise substantially more before they even out, you could be forgiven for experiencing some feelings of nervousness about your finances.
In the face of rising interest rates – don’t panic – budget.
The first step is to come to terms with the fact that this is going to happen. It can’t be avoided. Now is the time to sit down, look at your finances, what the predicted mortgage increases are likely to be and plan for how you will tackle this difficult situation.
We’ve created a predicted repayment schedule based on a $500K mortgage over a 25-year term. According to this modelling, you’ll need to find an additional $521 per month by February next year. To assess your own individual scenario, take advantage of online home loan repayment calculators such as CommBank’s Home Loan Repayments Calculator and input your own data to get your predicted repayments.
| Month | Mortgage | IR% | Term Yr | PMT (Mth) | Variation (Mth) |
| Jun-22 | $500,000 | 2.84% | 25 | -$2,330 | $0 |
| Jul-22 | $500,000 | 3.34% | 25 | -$2,460 | -$131 |
| Dec-22 | $500,000 | 4.25% | 25 | -$2,709 | -$379 |
| Feb-23 | $500,000 | 4.75% | 25 | -$2,851 | -$521 |
Now that you have an understanding of what you are likely in for, it’s time to create a budget.
How to Create a Budget
Base your budget on your pay cycle. If you get paid fortnightly, create a fortnightly budget.
1. Income
Make a list of all income that you receive and when it is due to come in. This may be wages, government payments or pensions, rents from property investment, dividends and interest payments.
2. Expenses
Expenses can be broken down into fixed expenses, debt expenses and unexpected expenses.
a) Fixed expenses can include:
- Rent
- Strata levies
- Land tax
- Property management and maintenance
- Utilities
- Council rates
- Groceries
- Medical
- Insurance
- Transport
- Education
- Childcare
- Sport
b) Debt Expenses can include:
- Mortgage payments
- Credit card debt
- Personal loans
- Car loans
c) Unexpected Expenses can include:
- Car repairs
- Extra school expenses
- Pet expenses
- Medical emergencies or unexpected needs
3. Spending Limits
Your income, less all the expenses listed above is your spending and saving money. Decide how much you plan on setting aside for the ‘wants’ in your life, such as entertainment, travel, eating out and hobbies. In the face of rising interest rates, this is the area you will likely take from to increase your mortgage payments.
4. Savings
Every little bit you save adds up and provides a buffer for unexpected costs or helps you to reach your financial goals. Try not to use up all your savings to pay your increased mortgage repayment costs.
Strategies for minimising mortgage repayment costs include:
- Changing your home loan provider if you can get a better rate elsewhere
- Making payments fortnightly instead of monthly
- Using an offset account
- Pay principal and interest as the rate is likely to be lower and you’ll be making a dent in the principal.
If you’ve done the budget and are finding it difficult to meet the repayments on your mortgage, we’ve put together some ideas on how to reduce unnecessary spending.
Ways to Reduce Spending
There are lots of ways to reduce spending to increase your savings or to meet higher mortgage repayment costs.
Ideas to consider are:
- Eat out less – invite friends around for a BBQ or do ‘bring a plate’ nights
- Enjoy free entertainment such as family bush walks, exploring your neighbourhood, beach picnics
- Buy in season fruit and vegetables
- Eat less meat
- Turn off all appliances at the power when not in use
- Upgrade clothing with accessories rather than buying the latest fashion
- Join the upcycle, repair and reuse movement by buying second hand and repairing items rather than throwing them away
- Plant a garden of fruit and vegetables
- Holiday at home
- Go camping
- Stop buying take away coffee – bring one from home
- Make your lunch and take it to work rather than buy in a café
- Sell unwanted items on online marketplaces
If you are concerned about rising interest rates, it might be time to consider downsizing. Why not contact one of our expert sales team who can advise you on the value of your property and what your prospects are in terms of selling.