Freaking out about interest rate rises? Here are 5 things to do today

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Freaking out about interest rate rises? Here are 5 things to do today

Phil Lowe just killed my holiday Zen buzz.

I returned this week from six blissful solo nights away in a cabin in the woods, where I meditated, cooked nourishing curries, listened to Dolly Parton and slept. Oh, did I sleep!

Credit:Dionne Gain

Being me, I also packed my household budget binder and spent some time quietly reflecting on my annual budget.

Breath in-2-3. And out-2-3. Aaaaah. Zen at last.

But while I was away, our Reserve Bank governor, Phil Lowe, has been cooking up other plans for my emotional state this financial year.

What began as a gentle mid-election rate adjustment has developed lately into a full-blown, inflation-fighting, interest-rate war.

And it’s becoming clear that people like me – first-home buyers who only shackled themselves to rather large mortgages quite recently – are going to bear the brunt of rates pain.

After nearly two decades of observing interest-rate rises from the sidelines as a dispassionate and renting journalist, I now find myself a cog in the wheel of the official “transmission mechanism” of “monetary policy”, under which borrowers are squeezed like lemons to bring about a slowing in demand and price pressures the central bank deems appropriate.

Fortunately, my household finances are sound. I have a substantial monthly savings buffer and my mortgage rate is fixed at a low 1.84 per cent until the middle of next year.


Still, the prospect of what happens after that is unsettling. Higher costs will eat into my monthly savings buffer, either delaying my day of retirement or meaning I retire with less.

At some point, it will also mean I have to cut back my standard of living – the position many recent borrowers find themselves in already.

A degree of fear about what is to come is, in fact, the precise emotional response Lowe is hoping to elicit in borrowers.

However, Lowe doesn’t just want us wallowing in fear. He also wants us taking action, cutting back on non-discretionary spending and tightening our belts as best we can. Collectively, these actions will take demand out of the economy, which will help to curb price pressures.

So, here are five things you can do today to help you navigate what is to come.

Remind yourself it could be worse

The good news is that interest rates are only rising because of the underlying strength of our economy.

Joblessness is at its lowest in nearly half a century and, so long as you keep your job, you have an income to keep funding your mortgage.

Homeowners might also take heart that there is, for most people, a real psychological value to be had from finally being on the ladder of secure housing tenure.

Spare a thought for renters, who are also facing rising living costs with less housing stability.

Run your scenarios

That being said, rate rises are going to hurt. Use the MoneySmart Mortgage calculator to run some scenarios.

I did my sums this week. My monthly mortgage repayments are fixed at $2599. If I switched to one of the best available variable interest rate loans on the market (about 2.59 per cent), I would be paying an extra $300 a month.

If the cash rate rises to 2.5 per cent – which most economists expect – this pushes that lowest variable rate product to 3.74 per cent, and I’d need to find another $733 a month. I expect this will be at least what I will encounter mid next year, when my fixed-rate period ends.

If the cash rate goes to 3 per cent, I’ll be out of pocket by an extra $932 a month. And so forth. At some point, my monthly budget surplus of about $1500 would be extinguished, and I’ll need to take action.


Make a hit list of expenses you can ditch

Worst-case scenario, I could stop contributing extra to my superannuation, despite that strategy offering some of the best tax breaks in town.

My gym membership of $386 a month could get the chop, although I’d probably rather sacrifice my super to ensure I arrive at retirement in peak health. My holiday’s budget of $500-ish a month could also take a trim – I’ll have to Zen out at home.

After that, my budget is already looking pretty bare. I only budget $150 per month for eating out and $20 for alcohol.

There are also private school fees to pay, but I’d sooner switch to a higher-paid job than sacrifice that, which brings me to point 4…

Think about alternative employers or jobs

Australia’s historically tight labour market is a major driver of higher interest rates, but it also presents opportunities for borrowers, particularly highly skilled workers.

Now is the time to dip your toe in the jobs market to investigate what alternative employers are paying and/or to ask your boss for a raise.

Start tracking and slashing expenses


Shop your mortgage interest rate. Review and compare insurance premiums and coverage at least once a year (and have policies with the highest excess possible).

Use comparison sites for energy such as or, for Victorians, (and don’t forget to log on today and apply for your $250 power saving bonus!).

By far the best way to identify unnecessary spending is to start tracking it in whatever way suits you. It can be spreadsheet or just good old pen and paper. You can use my resources at

Knowledge is power and knowing where your money is going today will put you in the best position to find savings tomorrow, as needed.

  • Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

Jessica Irvine is author of the new book Money with Jess: Your Ultimate Guide to Household Budgeting. You can follow more of Jess’ money adventures on Instagram @moneywithjess and sign up to receive her weekly email newsletter.

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