How best to prepare in a rising interest rate environment
The RBA recently initiated its fiscal policy measures to control spiralling inflation by increasing the cash rate, the first of a number of expected interest rate increases ahead.
A rising interest rate environment is something foreign to many of today's borrowers, particularly those who have entered the housing market in the last 10 years or so.
Rising rates are the ultimate trigger event to review and potentially refinance and restructure your home or business loans.
Here are our top tips for being best placed in a rising rate environment.
Ensure you’re starting with the best rate available. Our experience is that existing borrowers can be paying over 1% more than they are eligible for with a different lender, commonly referred to as the ‘loyalty tax’. This is the equivalent of four standard RBA cash rate increases you can wipe out instantly.
Utilise your offset account. If you have excess cash that isn’t working for you, ensure you have an offset account aligned to your debt, and ensure it’s offset against your non-tax deductible debt (your home, not your investments)
Structure your debts for tax effectiveness. If you have debt against both your home and investment property, make sure everything is structured properly to maximise your tax effective debt. All too commonly we see people who have increased debt against their principal place of residence to purchase investments, either property or equities, and haven’t structured their finances appropriately to fully leverage their tax offsets.
Fix your rate. Whilst the historically low fixed interest rates of 2021 are long gone, for the right borrowers who want certainty and risk protection, there are always options available to fix all or portions of your debt.
If you’re not well prepared for what’s ahead, please reach out to arrange a review.
