Inflation is on the rise and this often signals an increase in interest rates. The rate of inflation for the three months ended March, 2017 was 1%, which lifted the annual rate to 2.2% – the highest it has been for about six years. However, much of this increase was due to food and energy prices which are notoriously volatile. These are usually excluded in measuring what is termed core inflation, which is the long term trend in prices. So while prices are rising, it is still likely that the Official Cash Rate (OCR) will not change until next year.
That said, the trend for mortgage interest rates is up. The OCR is just one factor which impacts on mortgage interest rates. Mortgage lenders borrow money offshore and rising interest rates overseas will have an impact, as well as ongoing high demand for mortgage lending. While many people fix their mortgages, those who fixed when interest rates were at their lowest point will be facing an interest rate reset soon. It is time to prepare for increases in mortgage repayments. Work out what new repayments will be by using mortgage calculators that are available on most bank websites. One way to prepare is to voluntarily increase your mortgage repayments now to close to what they will be at the higher interest rate, if can do this without penalty. This will allow you to get used to higher payments while also reducing the size of your mortgage. If you can’t see a way of making increased payments, you may need to talk to your lender about extending the term of your mortgage or converting your mortgage to interest-only for a period of time. These are last resort options, as it is best to pay off your mortgage as soon as possible.