The RBA meets on the first Tuesday of every month to determine what the upcoming cash rate will be. Taking into consideration the strength of the economy we are currently experiencing, we do expect further rises to occur during the upcoming months, potentially affecting your borrowing capacity and consequently your loan’s pre-approval.
Since it is impossible to predict what the rises will be and how quickly they will happen, it is important that you keep the following considerations in mind to ensure your journey is a smooth and stress-free one!
The impact of Interest Rate Rises on your existing home loan pre-approval
When working with your dedicated Rise High Broker you will have had your borrowing capacity assessed prior to applying for a loan pre-approval.
At the time of assessment, our team will have looked into your ability to repay your loan at an interest rate that was 3% higher than the actual rate you would actually be paying. As a result, if the actual rate of your loan was 2.50% at the time we performed the assessment, we would actually have looked into your ability to repay this loan at an imaginary interest rate of 5.50%
Today, the outcome of this assessment implies that in spite of increased interest rates, you can still remain confident about your ability to afford your loan repayments!
What then, should be cautious about?
1. Interest rate and repayments
Our initial assessment provides you with peace of mind that you can still afford to cover your loan repayments. Still, you must be aware that the value of these repayments will be higher than what we initially discussed when planning out your pre-approval. Find more information on pre-approvals here!
Taking the time to review your initial plan and reallocate your budget accordingly will be your best choice! Ensuring you remain stress-free regardless of upcoming interest increases.
2. Lender reassessment
When finding a property and signing a purchase contract, your lender may also be interested in reassessing your ability to pay the loan based on current interest rates.
If you are close to the end of your pre-approval period, and your purchase price is at your maximum pre-approval amount, you will want to be particularly careful and mindful of this. Speaking to your Rise High broker can protect you against any unexpected outcomes and help solve any questions you may have regarding the process and reassessment. Our tips on house price negotiation may also come in handy to ensure you secure your new property at the right price.
3. Bidding at auction and unconditional contracts
Are you thinking about bidding at an auction or signing an unconditional purchase contract? If so, we strongly recommend that you reach out to our team beforehand and find out more about the process.
Increasing interest rates make it extremely risky for you to bid or accept an unconditional contract at your maximum pre-approval amount, and can put you in a situation of great financial pressure if taken lightly.
To avoid unexpected issues or troubles down the road, our best advice is to maintain constant contact with our team and your dedicated broker to find out what your actual maximum is under the current circumstances, as well as discuss the best course forward when it comes to committing yourself to the purchase of a new property.
4. Pre-approval lapse
As a final consideration, it is also important for you to be aware of your pre-approval’s lapse.
If this happens to occur before you find the right property, you will notice that your borrowing capacity will have decreased as a result of newly increased interest rates.
Thinking about reducing your price range or increasing your deposit can be necessary at this stage. Our team can help guide you through this decisions to ensure you are covered on all fronts and informed to make the best decision to achieve your goals.
How will Interest Rate Rises affect my repayments?
If you are looking for specific insight into the impact that rising interest rates will have on your loan repayments, we recommend that you make use of our Rise High Loan Repayment Calculator.
As a general guide, we have also come up with the following table to show you what the 0.75% rate increase we have evidenced till date, will have on different loan amounts:
|
Loan Amount |
Indicative Increase In Weekly P&I Repayment with 0.75% Increase |
|
$200,000 |
$19 |
|
$250,000 |
$24 |
|
$300,000 |
$29 |
|
$350,000 |
$34 |
|
$400,000 |
$38 |
|
$450,000 |
$43 |
|
$500,000 |
$48 |
|
$550,000 |
$53 |
|
$600,000 |
$57 |
|
$650,000 |
$62 |
|
$700,000 |
$67 |
|
$750,000 |
$72 |
|
$800,000 |
$77 |
|
$850,000 |
$81 |
|
$900,000 |
$86 |
|
$950,000 |
$91 |
| $1,000,000 |
$96 |
Ultimately, working closely with your Rise High broker is the best way to keep your peace of mind and ensure you are covered and ready for any unforeseen changes in the lending market. Our friendly team of experts will always be here to help solve your home loan and investment loan questions and hold your hand through this process! If you are looking for alternatives that can help support you in paying off existing debt sooner, you may want to explore options such as refinancing and debt consolidation.
