As I’m sure we’re all aware, the Reserve Bank has increased the cash rate by 25 basis points from 0.10 per cent to 0.35 per cent, marking the first rate rise since November 2010. The average owner-occupier with a $500,000 debt and 25 years remaining on their mortgage will see repayments rise by around $65 a month.
What that means for us all is our cost of living increases and we are all out of pocket with having to pay more on our mortgages every month.
This article however isn’t about the details of the rate rise or how much we’re going to see our monthly expenses increases. I want to dive into ways we can adjust our budgets to accommodate the increase by decreasing our existing monthly expenses,
Step 1. Find Out How Much The Rate Rise Will Be
We’ve set up an appointment with our bank to find out what will happen once the bank passes on the increase to mortgage holders. We need to know how much extra we will inevitably be forced to pay.
Step 2. Reassess Our Budget
For us, our budget is periodically adjusted and assessed regardless of what’s happening in the world. However, with this rate rise coming now we’ve taken the time to assess when we would otherwise be continuing with our regular budget.
Whilst reassessing our budget we take into account the increased repayments on our mortgage.
Another thing we usually do is check we are currently on the best deal for our utilities like power using Energy Made Easy. We check our internet provider is giving the best deal as well using Canstar. If you’ve been on the same plans for a long time you could be surprised how much you’ll save by switching to a new provider, or simply by calling your current provider and asking them to match a better deal you’ve found online.
Step 3. Make Cuts If Need Be
If you follow a zero based budget style then you may be in a bit of a pickle now. The downside of following this type of budget is you have no room for fluctuations or unexpected events to happen. If this is you, it may be time to change your budget methods.
Before searching for extra income to make up the extra repayments we will now be faced with, it makes sense to look within our budget first. Finding out where we can squeeze the extra from before putting any extra stress by earning extra from our primary incomes.
Here’s where to find what to cut:
A typical budget can be split into 3 categories right? Needs, Wants and Savings. Needs are things that are non negotiable items necessary for us to live, power, water, housing etc. Savings are the parts we pay ourselves, Emergency funds, Holiday savings, Early debt payoff etc. Wants, that’s where most of us can find things we can cut. They aren’t necessary, more so luxury. Streaming subscriptions, unused gym memberships, weekly massages etc.
Your ‘Wants’ category in your budget is where you and I both can always find ways to save more. Do you really need to get a massage every week?
Dealing With The Rate Rise
When banks first assess our suitability to be given a mortgage we are assessed based on a higher interest rate. Meaning, the banks calculate how much we can afford to pay back should the interest rate rise. If you were honest in your application (let’s face, not everyone is. But you can’t blame people for doing anything possible to get into their own home.) The rate rise shouldn’t cause too much pain financially.
This is also the best time to start shopping around for a better deal. With the rate rise comes more competition between lenders. Debt is a multi billion dollar industry and lenders constantly put out new deals to obtain new customers. Using websites like Canstar and Findr is a great place to start.
You can also contact a mortgage broker. Most brokers get paid from lenders, meaning you won’t be out of pocket. They’ll do all the work of searching for the best deal available for you.
Dealing With The Rate Rise
Although it’s going to be inevitably an uncomfortable transition into paying a higher interest rate, I don’t think it will be the be all and end all that the mainstream media is portraying. If you’ve done your fair share of budgeting like we have then there isn’t much more to worry about. Things like this are bound to happen, we live in a financially driven society. Without going off into the wilderness all of us homeowners are just going to stiff it out and pay up I guess.