By Third Party, 12 October 2010
Page last updated at 1:19 PM 12-10-2010
Don't let a reprieve lull you into a false sense of security. Interest rate rises are around the corner, writes Anthony Keane
Homebuyers are being urged to treat last week's Reserve Bank interest rate reprieve as a chance to bolster their household budget before big rate rises next year.
The RBA's decision to keep the official interest rates on hold at 4.5 per cent has split opinion about whether the next rise will be before or after Christmas, but all agree rises are on the way.
HSBC's chief economist for Australia and New Zealand, Daniel Pigott, expects RBA rate rises totalling 1.25 percentage points by the end of next year.
That forecast doesn't include any separate moves by the banks, which have been itching to lift rates, reportedly by up to 0.2 of a percentage point, above official RBA rate rises as they try to offset higher funding costs.
This means in just over a year someone with a $300,000 home loan could pay an extra $290 a month. A $200,000 mortgage could cost $193 more a month and a $400,000 home loan could cost an extra $386 a month.
The Mortgage and Finance Association of Australia says borrowers should keep spending in check, ensure repayment plans are adequate, and examine opportunities to save money with their existing mortgage.
"Families should take the time now to prepare for rising rates," MFAA chief executive Phil Naylor says.
RateCity chief executive Damian Smith says borrowers should be prepared by getting ahead of their mortgage repayments.
"This means, for example, paying off credit card debt, and making sure you've paid as much as possible on to your home loan before rates go up," he says. "Accelerating your repayments will also help reduce your loan size and save you paying interest.
"For instance, by adding as little as $100 a month to a $300,000 mortgage with the projected average variable rate of 7 per cent, your repayments would be $2220 per month and you could save over $43,000 and reduce your 25-year term by almost three years."
Smith says now is a good time to reduce all debts as much as possible.
"Start with your credit cards because they are probably costing you the highest interest. There are several balance transfer credit cards that are offering no interest for up to six months, such as ANZ's Low Rate MasterCard," he says.
"We expect credit card rates to rise regardless of what the RBA does."
While variable rates are on hold for the moment, fixed rate home loans have crept up in the past three weeks, Mortgage Choice spokeswoman Kristy Sheppard says.
"Our lender panel's average interest rate for a three-year fixed term home loan, the most popular, hit rock bottom in mid-September and is now on the way up," she said. "We have 24 lenders on that panel and 11 of those increased rates on one or all of their fixed loans in the past three weeks.
"This meant our panel's average three-year fixed rate rose by 0.14 of a percentage point in the past three weeks, from 7.33 per cent to 7.47 per cent."
Sourced from heraldsun.com.au
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