How to manage your finances during a period of interest rate rise

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Extreme mortgage stress from a series of interest rate rise is felt across the nation. Are you one of the 800,000+ homeowners who took out record-low-fixed-rate home loans during the Covid pandemic? Then you’re going to have to face thousands of dollars more in your monthly repayments, all thanks to the ongoing interest rate hikes.

This is going to cause a serious dent on your personal finances, from mortgage and loan repayments to savings and investments. Therefore, it’s crucial to understand what cash rates are, why interest rates rise happens, and how you can manage your finances during these cash rate hikes.

In this blog, we’ll explore the basics of the Australian RBA interest rates, their effects on the economy, and some practical tips to help you navigate the financial challenges and opportunities during this period. Whether you’re a homeowner, a small business owner, or an investor, this guide aims to help you make the most of your money and stay financially secure in a rising interest rate Australia environment.

What does interest rate rise mean?

An interest rate rise in Australia typically refers to the Reserve Bank of Australia (RBA) increasing the cash rate, which is the benchmark interest rate that commercial banks use to set their lending and deposit rates.

When the RBA raises the cash rate, it makes borrowing more expensive, which can have several effects on the economy and consumers.

Why are interest rates going up?

The main reason for an interest rate rise is to control inflation and maintain economic stability. When inflation is high or threatens to exceed the RBA’s target range of 2-3% (the current Australian inflation rate is sitting at 7.4%), the RBA may raise the cash rate to reduce the demand for goods and services and slow down the economy.

Higher interest rates make borrowing more expensive, which can discourage consumers and businesses from taking out loans and investing in new projects. This can lead to lower consumer spending, lower business investment, and lower economic growth, which can help to reduce inflationary pressures over time.

Another reason why interest rates may go up is to align with global interest rate trends or to respond to changes in the global economic outlook. It’s worth noting that interest rates are also influenced by various domestic and global factors, such as employment, wages, productivity, government policies, trade tensions, and geopolitical risks.

How much will interest rates rise?

It is predicted early on this year by major banks and experts that the cash rate will peak at 4.1%, and will go down slowly after. However, after the US final situation, some including Westpac are predicting the peak rate will be 3.85%.

How to prepare for interest rate hikes? Here are 5 tips

1. Don’t rush into big life decisions

Are you aware of the concept of a “home loan hostage”? This is when you are trapped in your current mortgage terms because you are under circumstances that hinder you from servicing your mortgage in a sustainable way or from refinancing your home loan.

It’s even going to be more difficult if you jump into significant life decisions. A recent study by Mozo revealed that despite these tough times, borrowers are still planning to:

  • change jobs (19%)
  • have a child (8%)
  • take out a new credit card, personal loan, or car loan (18%).

Life happens, but it’s important to take a cautious and informed approach to big life decisions during cash rate hikes. You should consider your financial goals, assess your current and future income and expenses, and seek professional advice.

2. Reassess your household spending

Business confidence are at record lows, all thanks to high interest rates Australia has not seen since the 1990s recession. Consumption is slumping, and it seems that Australian consumers are reining their spending habits in — which is what the RBA actually wants to happen to help combat the rising inflation.

During a cash rate hike, interest rates on loans and credit cards may increase, which can make it more expensive to borrow money and increase your overall debt burden. By reassessing your household spending, you can identify areas where you can reduce your expenses (e.g., travel, eating out, entertainment, luxury goods, etc) and free up some money to cover the higher cost of borrowing.

You may also want to review your existing loans and credit cards to see if you can refinance or consolidate your debts to get a lower interest rate and reduce your monthly repayments. Lastly, consider reviewing your savings and investment strategies to ensure that they are aligned with your financial goals and risk tolerance.

3. When possible, get a savings buffer

Getting a savings buffer during cash rate hikes can provide you with a financial cushion to help you manage unexpected expenses, cover the higher cost of living, and cope with any potential income changes.

When there is space in your monthly budget, do set aside some cash for your safety net. This will help protect you in case of an emergency or unexpected expense and help you to feel more confident and in control of your finances. Those with fixed rate mortgages who had savings buffers are able to better navigate the current stressful situation of rolling off their mortgages than those who didn’t!

4. Refinance your home loan

More and more homeowners are now taking a more proactive approach to managing their finances and home loans. A whopping 2370+ homeowners are now refinancing their home loans every business day!

Refinancing is extremely beneficial because it allows you to:

  • take advantage of more competitive rates that are new in the market;
  • consolidate you debts; and
  • access equity for home improvements, business, or major life events.

The chart below shows the average variable interest rate on expiry of a fixed rate loan is around 50 basis points higher than the average variable rate on a new home loan. That translates to a significant amount of savings right there.

interest rate chart

5. Get help from a mortgage broker

Did you know that more than half of millennial and Gen X borrower (56% and 54% respectively) are eager to work with a broker to help them with mortgages?

Working with a mortgage broker during a period of interest rate rise can be beneficial as they can help you navigate the changing interest rates and find the right mortgage options for you. They can also provide access to a wider range of lenders and loan products, potentially saving you time and money.

Call us for your mortgage and finance solutions

The team at Sunshine Coast Financial solutions is here to assist you with finding mortgage finance solutions that work best for your unique circumstances. Feel free to reach out to us when you have questions or feel ready to take back control of your finances.

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What our Clients Say

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I’ve recently had the pleasure of working with the team at Sunshine Coast Financial Solutions to secure a new mortgage. Throughout the entire process, communication was clear, professional & friendly. I was kept up to date and was well informed every step of the way. I wholeheartedly recommend Sunshine Coast Financial Solutions to anyone in need of expert mortgage advice & assistance.
This is the 3rd time we have used SCFS, this time for an investment property and refinance overall.Chris advised us to what our best options were taking into account taxable nature of investment and how best we structure between that and our owner occupied.The team at SCFS found us a much better rate overall and have infact reduced our monthly payments.Chris and team (Adam, Darryl, Shanina) keep you updated every step of the way and make the process seamless and easy even when we have had more complicated lending requirements.We have had the pleasure of referring several of our friends to SCFS who have been equally impressed. We are based in NSW, and absolutely no issues being in a different state.If you are after a personal service, and one that continues to proactively manage the best deal for you ongoing this team will look after you.
Very helpful team with excellent communication throughout the whole process. Would definitely use again and highly recommended!
The team was friendly and very easy to deal with. They made the process of getting a loan easy by walking us through every step.
The experience we had with Sunshine Coast Financial Services was incredible. They were professional, knowledgeable and reassuring from the start of our house purchasing journey right to the finish.Apart from all the team, we were lucky enough to have Daryl Hermann assisting us.He was so positive, helpful, encouraging and always happy to answer any questions that I had and there was plenty….Thanks to SCFS we are now the proud owners of a home we could only have dreamt of.Without a shadow of doubt I would highly recommend anyone looking to purchase a home to give these guys a call.I know I certainly will when I choose to purchase another property.
Easy to deal with, happy with the results
Very supportive, available, thorough and professional- highly recommend.
My partner and I were super keen to get into the property market and reached out to Chris and his team as a result from reading these outstanding reviews and they did not disappoint. The team have been nothing but transparent throughout every process of building our first home and answered all our questions in record time. Thank you for your continuous support! Anyone needing assistance needs to look no further then SCFS! If I could put 10 stars I would.
Just wanted to thank Chris Wilson and Tracey Butler for looking after me again with my home loan. My fixed rate is expiring soon. Weeks ago Chris contacted me to discuss my options, the process and a plan of attack.Tracey diligently stepped in right on cue and executed the plan with a superb outcome. A better than expected interest rate, not just for now but for the future of my home loan. I couldn't be happier.This team makes you feel like they step into their customers shoes as if it was their own home loan. They strive to do everything they can for their customers and in such a friendly and professional manner. Thank you again Chris and Tracey.
Efficient, helpful and honest advise. Highly recommend
What a treat it was to work with Chris and his team, they are extremely professional and we're able to find me a much better deal on my home loan. I'm now saving thousands each year! I couldn't recommend him highly enough 👍
Sunshine Coast Financial Solutions worked magic for this first home buyer. The home-buying process is very daunting for newcomers, when searching for your dream home it's hard to know the usual steps and who to trust. Chris and Adam from SC Financial Solutions provided professionalism and attention to detail each step of the way, helping to relieve stress and bring peace of mind knowing we were in safe hands throughout this life changing decision. I'll recommend SC Financial Solutions to everyone searching for an award-winning knowledgeable, reliable and responsive brokerage team.
This new homeowner is thrilled to leave a review for Chris and his colleague Adam at Sunshine Coast Financial Solutions. These mortgage wizards worked their magic on a loan for me, comparing all leading banks of Australia, with a great result. Their efficiency and advice meant I could make a fast and easy settlement. Chris and his team have made our first home buying experience so much easier.If you need a mortgage, I couldn’t recommend enough🌞🏡 Sunshine Coast Financial Solutions 🌞🏡
Excellent service, fast and efficient. I have been using the SCFS team for years and recommend them to anyone for finance solutions. You lean back and relax while they do the hard work and find you the best deal. Very happy 😊
Today is approval day something I did not think I would be doing in this day and age with how life has been but thanks to the team at SCFS it's all been made possible and easy couldn't recommend a greater team, will definitely be using them for my next few houses
I've been using Sunshine Coast Finance for a number of years over which time they have taken care of the finance for 3 properties, I can't recommend them enough.
On behalf of my wife and I, We highly recommend Chris and his team for your financial needs. They made our process feel smooth and enjoyable, and we will definitely be returning in the future for their services.
My husband and I have worked with Daryl for a while now and the experience has been nothing but beyond exceptional. The work he puts in to help us is incredible. We would be lost without his expertise and guidance. We couldn’t recommend Sunshine Coast Financial Solutions more highly.
It was the first time for me to buy a house. I really had no idea how complicated it is. The Sunshine Coast Financial Solutions team support was amazing; they took care of everything and negotiated a very convenient interest rate. The communication was also fantastic. Great result with a minimum effort. Highly recommended
Absolutely amazing service. From start to finish the communication was 100%. We were kept up to date throughout the entire process and always felt supported. Daryl was so easy to talk to, responded to every question we had and I cannot thank him enough, we really appreciate all that he did for us. I will not hesitate using their service again in the future and have passed on their details to friends! Thankyou again for everything!
Excellent professional and friendly service, excellent communication, kept us informed throughout process. Highly recommend
The team at scfs are awesome. Thank you so much for making my home refinance a breeze. I've been asked by few people now, how I got this so quickly. I said "my broker is the gun". Thank you so much Chris, Shanina, Adam, Daryl and Tracey, for all your hard work, and dealing with me. Definitely 5 stars👍
I highly recommend Chris and his team @ SCF Solutions to anyone going through a divorce or any other life transition that involves financial decisions.Chris’s expertise, practical approach, and easy-going nature provided the clarity I needed to make informed decisions about my financial future. Chris’s open and honest manner empowered me with a strong understanding of my financial position and lending capability which eased the burden associated with the division of the matrimonial home. He treated me like a priority and provided valuable guidance and support every step of the way as I navigated through an emotionally challenging time.Communication during critical times in the process such as loan approval and settlement was outstanding, even when this fell over the Christmas/New Year period. Someone from his team was always available to answer any questions or concerns and provide reassurance when needed.Second time I have engaged Chris over the past 8 years, and I can proudly say I will remain a lifelong customer!If you want the best possible mortgage to suit your specific financial situation then you can’t go past Chris and his team.
Chris and his staff members are always very helpful and informative.
Another brilliant experience with the SCFS team. Excellent from start to finish - thanks so much Chris and the team 👍
Excellent, thank you
My partner and I had Jo and Shanina from SCF help us with our home loan, everything was quick and effortless which is what we wanted. Highly recommend them!We also just had a 1 year review from Tracey and she ensured we were still getting the best rate :)
Chris and his team have helped me again to buy a property which was a stress free and quick process. I have complete trust in Chris and would highly recommend his business.
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Chris and his team made financing our new home purchase a smooth process that left nothing to chance. With his support we were able to confidently bid on and secure our dream home and he made sure we had the very best deal we could achieve in record time.Chris coached us through each step and was always available to answer our questions and provide guidance when we needed it.Overall his team is professional, friendly, helpful and always approachable.We couldn't have achieved the result we did without his help and we would definitely use his services again.We can thoroughly recommend Sunshine Coats Financial Services and Chris Wilson to anyone looking to arrange their finance. You won't be disappointed!
Chris & the team have been fantastic from start to finish. Patient, professional & supportive throughout the whole property purchasing journey. They have gone above and beyond to help me into a property, I am very happy with my experience from start to finish. I can’t speak highly enough of their transparent and professional approach.
Once again, Chris and the team at SCF have provided us with excellent service. They are professional, efficient and always available to answer questions and concerns. We would highly recommend them.
I recently purchased my home using the SCF Solutions for my financial needs, and I must say that I had a fantastic experience. The person who handled all my transactions on my behalf, Daryl Hermann, was extremely meticulous and efficient. His attention to detail and promptness in completing all the necessary tasks left me truly grateful. I highly recommend SCF Solutions for anyone in need of financial services. Thank you, Daryl, and the entire team at SCF Solutions for your outstanding support!
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So much thanks to Chris and the team at SCFS. We had a very difficult and compressed settlement subject to many finance extensions. The whole way through the journey the whole team were absolutely professional and got us into our new home.I Very highly recommend there services toAll.Your sincerelyCraig Jenkins & Katherine Thompson
Adam and the team at SCF have been fantastic in finalising my re-finance. Adam provided insightful knowledge on lenders that would be more suited to my situation and the best avenues to go forward with. He achieved my expected result within a really short timeframe. No question was too silly. Can’t recommend Adam enough.
The team were amazing to work with. They made the process so easy, kept us updated on the process and gave us multiple options to achieve our goals. Couldn’t recommend them enough!!
Chris and the team make it so easy and hassle free. Cannot recommend them highly enough and wouldn't use anyone else apart from them.
Chris is very professional and always does everything to help us out!
Chris and the team were fantastic in helping us get our mortgage for our first home in Australia. They helped us through the process and were supportive, attentive and helpful throughout the entire process. I would heartily recommend SCF!
Chris was great to deal with, straight to the point and got what we needed done. Explains everything you need to know in detail.Extremely happy with the outcome 👌🏻
I am a repeat client of Chris and his team. In every experience I have had has been 100% positive. Chris and his team do everything possible to make every step through the process explained and run smoothly. I highly recommend anyone looking to finance or refinance to talk to Sunshine Coast Financial Solutions.
the scfs team were fantastic from start to finish in getting my new loan. Nothing was a problem for them. Getting everything sorted very fast. Very fast replies and always keeping you updated.I can't recommend daryl and the team enoughThanks again
Chris, Shanina and the rest of the team were so super helpful, understanding and really got the best rate for me! Not only that their communications were so clear, consistent and they were always available for help and advice! Would highly recommend to anyone!! Thank you team!!
SCFS have assisted us with brokerage a few of times now and Chris, Matt, Shanina and the team have been fantastic every time!
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