Latest News

What is inflation and why does it impact interest rates?

So, there’s been plenty of fanfare about it, but you’re probably wondering why the Reserve Bank of Australia (RBA) is lifting rates. Simply put, it’s all to do with stopping your spending. The RBA has raised interest rates in order to counter inflation, which has been rising rapidly in recent months. In this article, we’ll take a closer look at what inflation is, why it’s a problem, and how higher interest rates can help to combat it.

What is Inflation?

Inflation is the rate at which the general level of prices for goods and services is rising, and, in Australia, it’s measured by the Consumer Price Index (CPI). The CPI is calculated by tracking the prices of a basket of goods and services that an average household might consume. If the CPI goes up, it means that the cost of living is increasing, and your money is worth less than it used to be.

Why is Inflation a Problem?

Inflation is a problem because it erodes the purchasing power of your money. If prices rise faster than your income, you’ll find it harder to afford the things you need and want. This can lead to a decrease in consumer spending, which can in turn slow down economic growth. Inflation can also lead to uncertainty and instability in financial markets, making it harder for businesses to plan for the future.

How Can Higher Interest Rates Help?

When the RBA raises interest rates, it makes it more expensive to borrow money. This means that people and businesses are less likely to take out loans and spend money, which can help to slow down inflation. Higher interest rates can also encourage people to save more, as they’ll earn more interest on their savings. This can help to increase the supply of money available for lending, which can also help to slow down inflation.

What Does This Mean for Homeowners and Buyers?

If you’re a homeowner with a fixed-rate mortgage, you’ll likely see an increase in your monthly mortgage payments as a result of the rate hike. This can be a significant burden, particularly if you’re already struggling to make ends meet. If you’re a prospective homebuyer, higher interest rates mean that it will be more expensive to borrow money to buy a home. This can make it harder to get approved for a mortgage or afford the monthly payments.

In Conclusion

While the RBA’s decision to raise interest rates may be unwelcome news for some, it’s an important step to combat inflation and maintain economic stability. By making it more expensive to borrow money, the RBA hopes to slow down consumer spending and encourage saving. While it may be tough in the short term, higher interest rates can help to ensure a more stable economic future for all Australians.

Ready to get started? Get in touch with our team today for an obligation-free chat.

In an uncertain interest rate climate, one of the best strategies you can deploy to protect yourself now and into the future is paying off as much as you can while rates are creeping up.

With further rate rises expected, paying more while rates are still lower can put you months ahead, and next year, when rate rises do peak, you’ll find yourself in a position where you are ahead in terms of mortgage payments.

So, what can you do to pay off your home loan faster? Let’s talk about some strategies you can action to start getting ahead in the mortgage game.

Change the frequency of your payments – if you’re paying off your home loan monthly, look to changing it into a fortnightly or weekly payment cycle. By doing so, you are paying down the principal amount faster (as interest accrues monthly), thus reducing the interest accumulating. By paying weekly or fortnightly, you’re also making an additional month of payments per year. Contact us to discuss how this might work for you!

Make extra repayments – making additional lump sum payments, say from a tax refund or that work bonus you got this year, could significantly impact the life of your loan and, of course, how much interest you’ll pay. Even throwing in the odd smaller regular repayments could help you over the life of the loan.

Make sure you have the loan that suits your needs – there are many different loan products available, and some of them are probably better suited to your current situation. We can talk to you about additional loan features which might enable you to pay off your mortgage faster – for example, an offset account or a redraw facility. An offset account will let you offset interest accrued, and a redraw facility could allow you to make extra payments while also accessing these funds.

There are many different options available that will assist you in paying down your mortgage effectively. Our experienced team will take the time to assess your current situation and recommend actionable strategies – be it your primary residence or investment property.

If you’d like to discuss these options, contact the MAW Money team today.

Make MAW Money Today.

Get started by getting in touch with us for an obligation-free discussion. We’ll learn all about your financial goals and tailor our approach to you.