Seven steps to cope with higher inflation

Persistently high inflation is taking its toll on homeowners as the Reserve Bank of Australia continues to push the cash rate higher with the promise of more rises.

Some 35% of housing debt is locked into fixed-term loans, according to the RBA's Financial Stability Review. Two-thirds of those fixed-rate deals expire this year.

Being squeezed between rising rates and inflationary pressures is no fun, so here are some steps to help ease the burden.

Keep calm

Be systematic in how you approach the challenge. It's natural to feel stressed as it's an emotional position, but you'll handle the situation better by being analytical and methodical.

Talk to the experts

Understand your situation accurately. Book a time with your mortgage broker or bank to discuss what each future interest rate rise will mean for you. This is especially important if you're coming off a fixed rate.

Revise your budget

If you don't have a household budget, it's time to start one. For those who apply this discipline, adjust the numbers for the additional mortgage expense. That way, you'll get an accurate bottom-line picture. Study your expenses to see where you can trim the fat.

Seek a cheaper rate

Lenders work hard to attract customers, and it's an expensive loss when one walks away. So, leverage your position and ask for a better rate. Research suggests only 30% of Aussies do this, so don't be one of them! Data from Compare the Market says more than two-thirds of requests receive a positive response.

Refinance options

There are several options available. The most common is to find a cheaper deal. The market is full of incentives for homeowners to switch lenders, such as lower introductory rates, cash-back deals, and cheaper fee offers. A total $19.1 billion in refinance deals were completed in December, according to the latest figures from the Australian Bureau of Statistics so you won't be the only one out there looking to swap.

Use existing equity

You can also use the equity in your existing loan to reschedule payments. This might mean rewinding your mortgage to a 25 or 30-year arrangement.

Downsize

The last outcome you want is to exit the market but now may be a good time to reduce your overheads. You've worked so hard to get here, so it's vital you retain a level of property investment. We'd be happy to talk to you to guide you on the current value of your home and discuss what other properties may suit your needs.

Paulette Contessi

Licensee / Director

THE CONTESSI GROUP