Many borrowers with variable interest rates will be relieved today (April 5, 2011), following the Reserve Bank of Australia's announcement to leave the official cash rate unchanged at 4.75 percent.
But borrowers shouldn't be too relaxed with their spending, as Australia's best financial comparison website RateCity (www.ratecity.com.au) is warning borrowers to prepare for higher interest rates by the end of the year.
Damian Smith, RateCity's CEO, said that borrowers should use the rate pause to review and improve their financial situation.
"We welcome the Reserve Bank's decision to leave the cash rate at 4.75 percent today as we estimate that about 40,000 households across Australia are already struggling to meet their mortgage repayments.
"There are still too many household who are on the verge of mortgage stress - when more than 30 percent of their income is used towards their mortgage repayments.
"While there might be several months before we see any interest rate movements, borrowers should use the time to review their financial products like their home loans and credit cards and make sure they are getting the best value for money before it's too late," said Mr Smith.
Damian Smith's tips on what to do if you are on the edge of losing your home
* Don't panic: the first thing you should do is speak to your lender. Find out what options they have in place to help ease the pressure of financial hardship. For instance options such as a break from repayments, interest only or extending your loan term can help get you back on your feet without impacting your credit file. Remember these should be used as temporary alternatives because they will end up costing you more in the long-run.
* Review your budget: work out how much you realistically can afford to spare in paying off your debts. Look at consolidating options such as balance transfer credit cards and pay off as much as you can during the honeymoon period. Also use this time to cut back on spending.
* Consider down-sizing: before it's too late, you might want to look at putting your property on the market or renting it out to find somewhere cheaper.
* Compare home loans online: you could potentially save thousands of dollars by simply switching your mortgage to another lender. Look into how much it will cost in exit fees and application fees before you jump ship. It's also worth using your knowledge of the home loans market to re-negotiate your rate with your current lender, which can save you on paperwork and fees.
* Talk to the ombudsman if you can't resolve something with your lender - banks (via the Banking & Financial Services Ombudsman - www.bfso.org.au) and non-banks (via the Credit
Ombudsman (www.cosl.com.au) can assist if you're unable to resolve a dispute with your lender - though you have to go through the lender's process first.