Interest rate rises and what that means for you!

Interest rate rises and what that means for you!
Millions of Australians have been dealt with yet another interest rate rise! And although we would love to tell you that was the last one, unfortunately there looks to be another rise set for November 2022.

But what does this mean for you? How much extra money will be tagged onto your mortgage repayments each month, and have you allowed for these increases?

For those of you who locked in a fixed interest rate and are about to exit, planning is essential! With 5 interest rate increases this year, the jump from your fixed rate to the current market rate may put you at risk of mortgage stress.

Let’s take a look at an example of a couple that may be in for a rude shock!

David and Kate purchased their new home in February 2020 for $700,000. To complete the purchase, they borrowed $500,000 from ABC Bank, and were able to obtain a fixed interest rate of only 2% per annum, for 3 years.

However, in the next few months, they will be exiting their fixed term and will be shocked when they head back to ABC Bank and their interest rate is due to increase to possibly 5.5-6% – that’s 3.5% increase, if not more!

So how much additional interest will they be paying each month?

For David and Kate they are looking at an additional $1458 a month, just in interest payments. 

It is also important to note, that the same bank may not let them continue on interest only – and request they now start paying principle and interest, OUCH!

Are you in this situation?

If you’ve borrowed $1 million, the interest repayments based on an increase of 3.5% will be an additional $2917 a month!
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Below is a chart showing the impact of an increase from a 2% fixed rate to a new rate of 5.5% rate.

If you are worried about the impact of increasing interest rates, let’s have a chat, crunch some numbers and see how this may affect you or your business.