FYI – How to deal with an interest rate hike

The first reserve bank meeting of the year seems like it will deliver an all-too familiar announcement this afternoon – that of another rate hike.

Whether it’s 25 or 50 basis points, all homeowners and investors alike will be impacted by the move. Even in the unlikely event that the RBA doesn’t move rates, everyone with a loan is paying a lot more in interest than they were 12 months ago. So how should we react.

Firstly, the best thing to do when you read the inevitable doom and gloom in the press about the impact of yet another rate hike is - nothing. Initially anyway. Just because the official cash rate has moved to a particular point, that doesn’t mean that your particular rate will move in exactly the same way. To be sure, if official rates go up, it is safe to assume that your rate will climb as well. But by how much? And when?

In order to understand exactly how your specific loan rates will behave, you will have to be a little patient. Most banks will move their residential mortgage rates within a day or two. But their commercial departments (covering any loans other than home loans or residential investment loans) usually have some sort of lag. And what if your lender isn’t a bank?

You see there are a range of factors that will impact your personal circumstances that go beyond just the official cash rate announcement. To find out exactly how you have been impacted you can either wait until your next loan statement, or after a week or so, call your lender to find out what the most recent changes mean for you.

The second thing you should do is call a broker. For residential loans, call a residential broker, for anything else call a commercial broker. There may be some overlap between the two but as the names suggest, the respective areas of expertise do differ…and that difference matters.

Now, you might think that of course a commercial brokerage will put out advice telling you to contact them. Although this article might seem like shameless self-promotion of our business, it actually happens to also be a good tip. Just because the RBA rates go up, doesn’t mean yours have to!

“But wait, didn’t we just establish in the previous paragraph that my rates are almost certain to go up?”

Yes we did – the rates on your loan will likely follow the cash rate movement, at least to some degree. But consider this – what if you weren’t on the best rates to begin with? Sure you might have thought your banker had given you the best rates that their bank offers. That might even be true. But what if their bank’s rates weren’t the best to start with. By having a broker canvass the market for you, they will be able to get the best rates than any lender has to offer. So, even though rates have gone up across the board, you might find yourself with an opportunity to get a better deal than you had before the most recent rate rise.

“Aren’t brokers really expensive?”

Good question… I can only speak for Capstack and in our case, that answer is quite clearly NO. At Capstack, it doesn’t cost you anything to see your options. All you have to do is reach out (via our LinkedIn page or by going to www.capstack.com) and spend some time with our expert finance team so that they can understand your personal circumstances and the nature of your existing loan. Then we can take that information to the market and come back to you with some new options. In 99% of cases, we’ll be able to get you a better deal. If not – it’s cost you nothing other than a little time and at least you’ll have the confidence you’ve got the best on offer for the time being.

Start the conversation. It’s obligation free and completely empowering. You’ll also probably score a coffee on the house. Win.

*Please note this article is intended for discussion purposes only and is not intended as financial advice. Please consult a financial advisor or other professional before making significant changes to your financial circumstances