I don’t know about you, but I’m starting to dislike the first Tuesday of every month.
And it’s taco night!
But for the past four months it's also been the day the Reserve Bank of Australia (RBA) meets to hit our hip pockets with more cash rate hikes.
The good news is we can now see, with more certainty, how severe things will get.
Read more from Nicole Pedersen-McKinnon:
And, even more importantly, when the rate hike pain will ease.
Hint: It’s sooner than you realise.
How high will rates go?
The answer is: Higher yet.
Not dramatically higher, fortunately. But it’s going to happen fast.
The market, by way of a thing called cash rate futures, expects the interest rate to peek at 3.3 per cent in mid-2023.
And it may not even rise that far.
Finder’s Cash Rate survey of 26 economists and experts puts the final number at a much lower 2.5 per cent and suggests there may even be a pause in the hike-cycle shortly as the RBA surveys the response to its handiwork so far.
In either case, that mid-2023 bit is crucial. Expectations are growing that this is when we may see cuts again.
And this is key for anyone entertaining the idea of fixing their mortgage rate for a prolonged time at the, frankly, skyhigh levels to which they have climbed.
Why would interest rates start to fall so soon?
The RBA is trying to fix our out of control expenses.
I’m not even talking about mortgages.
Prices on everything from power to petrol, and even lettuce (did you know Subway has replaced iceberg lettuce with baby spinach?!) have gone through the roof.
The reasons why are big picture: Putin is responsible for petrol, and the ongoing coronavirus crisis in China is slowing down our supplies of virtually everything else.
Then there’s a huge backlog of undelivered goods.
Without getting too technical, normally rate rises are designed to slam the brakes on our spending. In other words, drop demand.
But the problem is Australia and the rest of the world is suddenly facing very limited supply.
Anyway, last week Federal Treasurer Jim Chalmers forecast that inflation would peak by the end of the year at 7.75 per cent.
Once price pressures ease, so too will our home loan repayments.
And in the meantime, perhaps take solace in the fact that tacos taste amazing with coleslaw.
What to do about eye-watering interest
If you are in a position to do so and you haven’t already, it’s time to join the $380 billion-strong throng of Aussies refinancing.
Right now is the sweet spot where refinancing your home loan from the average big four discounted rate of 4.7 per cent to the most competitive, comparable product at 3.09 per cent, wipes the precise amount of hikes.
The switch means you’d cut your repayments by $540 on the average $611,158 mortgage.
Those interest rates are today… Expect them to be 50 basis points higher shortly.
Beware of late payments
Realise that the worst thing you can do is be late with a mortgage payment. You only have 14 days’ grace before this will factor into and push down your credit score.
And for two years or more.
Instead, banks are urging people to come forward and ask for special treatment. After all, they don’t want bad loans on their books… It’s not a good look for their share price.
Each institution has a dedicated financial hardship department that will extend you leniency to get you across the line in this unexpectedly painful time.
What’s more, new credit reporting rules means this special consideration will no longer hurt your credit score. Previously, repayment holidays - the kind that were ‘freely’ offered in the pandemic panic and on this year's floods – could have.
Note that freely is in inverted commas because a repayment pause does not pause interest at all… It ensures you accrue more and lengthens your loan.
It’s vital short-term relief for you but ultimately your lender wins.
So if the alternative is defaulting, don’t be afraid to ask.
With any luck, this interest adjustment – and don’t forget we were at an abnormally low emergency setting of 0.1 per cent - will be mercifully short.