How do interest rates affect my homebuying journey?

How do interest rates affect my homebuying journey?

Louis: Australia braces for another interest rate hike. Jade! You gave me a fright! Almost as much as these interest rate hikes.

Jade: I'm not here to scare you, I'm here to help you understand how it might affect you.

Louis: Thank goodness. As you know, I'm trying to buy my first home and I feel like this is stuff I should know.

Louis Voiceover: ANZ Presents How do interest rates affect my home buying journey? It's okay. I didn't know either.

Louis: So what exactly does it mean if interest rates are going up? Like is it good? Is it a bad thing?

Jade: Well, it's a little more complex than that. On one hand, your borrowing power could be affected.

Louis: My borrowing power? Is this some superpower I should know about? Weee!

Jade: Well, kind of. It's basically how much your bank will let you borrow. So the size of the home loan you might be able to get. If interest rates go up, the size of the loan you're able to get may go down.

Louis: No offence, but can I choose a different superpower, please?

Jade: Wait, One of the good things about interest rates going up is that you can potentially push up the interest you earn on your savings. There's a higher interest rate on what you borrow, but you can also receive more interest on the money you saved in the bank.

Louis: Now that I can work with.

Jade: Whether it's a savings account or term deposit.

Louis: So it's this balancing act between knowing you might only be able to borrow less, but also potentially receiving more interest on the money I have in the bank.

Jade: Exactly.

Louis: When was the last time you've legitimately swung on a seesaw before?

Jade: Oh, when I was 12.

Louis: Okay, great. Oh, quick one- Why exactly do interest rates change?

Jade: So the Reserve Bank of Australia, Australia's Central Bank, set something called the official cash rate. Put very simply, this is the interest rate for banks and lenders borrowing from other banks and lenders. The RBA looks at a range of factors and then decides to either one, lower the cash rate to encourage people to spend and borrow or two, raise it to keep the inflation in control. Or three, leave it the same. And then usually that decision trickles down to banks' interest rates for what customers borrow and save. Now, unfortunately, none of us can predict the future, so we can't know what kinds of changes might be on their way. Changing interest rates could even affect national property prices. But there are a few ways to feel prepared for big economic shifts.

Louis: And I do love to feel prepared.

Jade: Firstly, buy what you can afford, it's generally not a good idea to buy something on the cusp of what you can afford. Try to leave a buffer. Work with your bank to get a home loan you can afford, not just today, but also in the future if interest rates change.

Louis: Don't live on the edge. Got it.

Jade: Two consider what loan structure works for you. Fixed interest rate variable interest rate or even a split between the two.

Louis: Another thing about me Jade is I love to keep my options open. You're learning so much about me.

Jade: And thirdly, do your research. Speak to your bank or broker, and have a good, hard look at the market so you're feeling as ready as you possibly can for any changes that may come your way.

Louis: You're so majestic with your knowledge. Thank you, bestie. If you're ready to do some research with me, subscribe to our channel and watch me as I upskill in a whole lot of other financial wellbeing topics. Oh and don't forget to check the links in the description for some more handy resources.

Jade: Oh!

Louis: Ooooh! I could stay here for hours with you Jade. Literal hours. This is so much fun. The serotonin that's seeping through my veins right now.

Jade: Probably a bit of endorphins.

Louis: Ah yeah. What you said.

Jade: Okay.