Interest rates play an important role in the housing market, and as a home buyer you will no doubt be paying close attention to the current lending market. If you're concerned about interest rates, consider the points below.
Navigating home loan interest rates
1. Rate changes are normal
Interest rates will always fluctuate over the lifetime of a mortgage. Increases and decreases will occur from time to time in line with economic changes. As a home owner, it's important to take this into consideration and adjust your budget accordingly.
2. Your borrowing power
When interest rates change, banks will adjust their serviceability rate accordingly.
Banks will take into account your current financial situation, and your ability to make loan repayments generally 2% higher than current market rates. This means the amount you can borrow towards a home can change anytime.
Higher rates aren't ideal, however, they do encourage home buyers to be more budget savvy when buying a property.
3. The property market
Low interest rates make owning a home more affordable, which can lead to more buyer competition and demand in the property market. When interest rates rise, the property market and house prices tend to settle. During this time home buyers may be able to take advantage of softening prices and more opportunities.
4. Budget is everything
Everyone should have a budget plan, especially when buying a home. It's important to determine what type of repayments you can manage. This will help you to work out a realistic budget for a home, so you're well prepared.
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"So long as you are buying something you can afford and actually like to live in, the rest is noise. In 1 year you will be far more comfortable living in it, than doing nothing..." - Jack |
5. Compare the costs
If you're currently renting, determine how much you're already paying. You could also take into account any savings you are already putting away towards a home. Try to determine what the difference in cost will be based on your current situation, and when you are paying your own mortgage.
6. Long-term mindset
No one can accurately predict the future of the property market. Instead of trying to find the perfect time to buy, or scaring yourself out of it, have a long-term mindset. The sooner that you own, the sooner you can start paying down your own mortgage. Better yet, over the long-term, your home will grow in value, building you equity!
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"I bought during initial Covid panic time and ignored all the hype from media, friends and social networks. Glad I did as my house has gone up like 30%. Truth is no one really knows what will happen to the property market. Best time is when you can afford it." - Melissa |
7. Research the local market
Australia has a very diverse housing market, so don't just rely on national housing market reports and statistics. Research your local housing market to obtain accurate information. Is your local area is facing strong population growth, high rents and a limited supply of homes? If so, house prices may remain strong even if they don't in other areas.
Key points
- Interest rates will always fluctuate during the lifetime of a mortgage.
- The long-term advantages of owning a home can outweigh any short-term disadvantages.
- Research your local market and seek affordable property.
- Mortgage brokers can compare different home loans and interest rates for you.
- Buying a home is your decision, don't let friends, family and social media sway you from making a fantastic long-term investment decision.
- Seek out professional advice and only buy property if it makes sense for you.
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