We do finance differently.

We do finance differently.

SAM AYLIFFE – ASTUTE MANLY

In recent months, we’ve seen the Reserve Bank of Australia increase the official cash rate several times. Consequently the banks also move in this direction with their home loan interest rates. This means borrowers will be paying more per month for newly established loans.

Two major flow on effects of these rises are:

• Borrowing capacity for new loans has reduced

• Those on fixed rates need to be careful of paying attention to when their fixed rate expires.

How does interest rates affect my borrowing capacity?

As you can imagine, when interest rates rise, your borrowing power decreases. This is because as rates increase, so do repayments; and your borrowing capacity is based on what you can afford to pay based on your income and spending habits.

For example, if the cash rate rose to 2.35 percent next year as predicted by Westpac, a family of four on a combined annual income of $150,000 may be able to borrow around $160,000 less from the bank*.

To help combat this problem, you could consider paying for a rate lock. This means that your interest rate won’t change between the offer you make on the home and settlement, as long as you close within the specified time frame and there are no changes to your application. Costs vary, so mention it to your mortgage broker to discuss further.

What should I do when my fixed rate expires?

For many Australians, the fixed rate period is due to expire in the next 12 months. With the large increase in interest rates over the last few months, and with more to come, many are now considering what to do when this period ends. So what are your options?

What many people don’t realise is that if you do nothing, you loan will likely default to a Bank Standard Variable Rate (BSVR), often higher than what you could get if you shopped around, or even higher than if you resigned with at the same bank!

Instead, it’s time to look at reviewing your home loan and preparing yourself well before the fixed rate period ends. You could look at options like refixing your home loan, switching to variable, or splitting your home loan.

The most important thing is to shop around and find a competitive loan that suits you. And a great way to do that is with the help of a mortgage broker who has access to a wide range of lenders and products to suit.

If you’d like to see what might suit you, come say Hi. We’re your locally owned and operated Northern Beaches Mortgage Brokers with decades of experience, offering a personalised service from our new office right on the waterfront at Manly. We’re here to help during these uncertain times – so feel free to reach out. •

iSAM AYLIFFE – ASTUTE MANLY – SUITE 10, 37-38 EAST ESPLANADE, MANLY 2095 0414 976 865 // sam.ayliffe@astutefnancial.com.au www.astutefinancial.com.au/manly

Disclaimer: Astute Financial Management Pty Ltd | ACN 093 587 010 | Australian Credit Licence 364253. *Source: Yahoo Finance: $160k less: Rising interest rates are shrinking your borrowing capacity. Published 10 June 2022. Indicative only and dependant on many other factors.