Rising interest rates are on everyone’s mind. And just recently, NineNews.com.au ran the story, ‘Another interest rate rise to heap pressure on millions of Aussie homeowners‘. Then in September, the reality of the 2.85 per cent forecast sent quivers of rate-rise anxiety down homeowners’ spines, and rightly so. Those with a $500,000 mortgage, for example, now need to find another $9,000 a year. But are rising mortgage interest rates something to fear? Our finance brokers dive in for more insight.

Home buyers 

From a home buyer’s perspective, conventional wisdom says as mortgage rates increase, affordability decreases. For example, let’s say Julie qualifies for a $400,000 mortgage at four per cent interest but increase the interest to five per cent and the bank can only offer Julie a $355,000 loan based on her credit score. The one per cent increase in mortgage interest rates doesn’t seem like much but it decreases Julie’s purchasing power by $45,000. Consequently, Julie may need to find a cheaper, smaller property or shop for a lower-priced mortgage. However, there are ways to weather falling home prices and rising mortgage rates:

  • Do your homework. Compare rates to find the best deal. If you lock into a fixed-rate loan, be prepared for the term’s end.
  • Be open to compromise. Look at houses one or two price points lower than your initial budget, and remember that a home is about more than size and location. There may be other factors, such as affordability and being able to afford lifestyle choices that are more important.
  • Examine your financial position. Analyse your entire financial picture, including income, expenses, savings and credit score; you may find ways to improve your purchasing power or lessen the burden of mortgage payments by raising your credit score or reducing other debts.
  • Avoid making unnecessary purchases on depreciable items such as cars and furniture that could further complicate your ability to afford a home. Remember, even though interest rates are rising, there’s no reason they will continue to do so indefinitely. And while purchasing power may decrease in the short run, it can increase over time as the economy grows and wages rise.


If you’re considering selling your current home, rising mortgage rates will affect you, too – although differently. As mortgage rates go up, depending on what State you live in, this could affect how quickly your house sells. Buyers may be more selective and consider properties with lower asking prices to compensate for the higher interest rate. As a seller you can combat this by:

  • Speaking to your finance broker before making any decisions about your selling strategy
  • Increasing your property’s curb appeal
  • Lowering the asking price accordingly
  • Making sure you’re priced competitively in your neighbourhood, and
  • Paying close attention to market trends and making necessary adjustments on the fly.

Effect on property value

Ideally, when the economy continues to grow rapidly, then mortgage rates don’t have as big an impact on house prices because strong job and wage gains counteract any rate increases. However, this isn’t what is happening in Australia at the moment. As a result, rising interest rates are decreasing the amount buyers can borrow, which is pushing down property values.

Buy or sell?

Buying a house during a period when mortgage rates are rising isn’t necessarily a bad idea. Historically, a five per cent mortgage interest is considered relatively low. Remember that although rates may increase, they won’t always remain at their highest levels. When home prices are low and interest rates are comparatively high, this may present the perfect time to buy – giving you a shot at homeownership.

Alternatively if you’re thinking of selling, rising interest rates mean your home may take longer to sell. But with some careful planning, market research and a mortgage broker by your side, you can make the best of a tough situation. Whether you’re buying or selling the key is to be flexible, do your homework and stay alert to market trends to get the best deal possible. Overall, there is no need to fear rising interest rates and falling house prices if you plan and make smart financial choices, as well as think long-term.

Staying put

So while an increase in interest rates might seem like bad news for those buying or selling, what does it mean for homeowners worried about escalating mortgage repayments?

The good news is there are a few things you can do to prepare for rising mortgage interest rates and falling house prices.

Financial security

Firstly, make sure your financial situation is as stable as possible. For example, employment is your biggest asset, so make sure you have a secure job that will allow you to pay your mortgage comfortably. If you’re concerned about your job security, start looking for new opportunities and keep an eye out for any potential layoffs in your industry.

Next, keep an emergency fund available should unexpected expenses arise, such as maintenance, home repairs or short-term unemployment.

Review your budget regularly

Reviewing your budget regularly will help you keep track of your spending and ensure that you are not overcommitting yourself financially.

Make additional repayments when you can

Making even small additional repayments can make a big difference over the life of your loan. For example, in some circumstances, an extra repayment of $50 per month on a $300,000 loan at an interest rate of five per cent may save you almost $18,000 in interest and shave over two years off the life of your loan. This doesn’t have to be paid into the loan directly; depending on your situation, you may be able to utilise an offset account to help save interest and reduce your loan term.

Shop around for a better deal

If you feel like you are paying too much in interest, it’s time to start shopping around for a better deal. There are plenty of competitive loans out there, so it’s definitely worth speaking with a broker to ensure you’re on the best deal for your situation.

Consider a fixed-rate mortgage

Should rising interest rates be worrying you, one way to offset the increase is by fixing your interest rate for a set period of time. This way, you’ll know exactly how much your repayments will be for the next one-to-five years and won’t have to worry about them going up unexpectedly. Of course, no one can predict the future, so there is always some risk involved when it comes to taking out a home loan. However, as long as you are mindful of your spending, budget carefully and speak to an expert, there is no need to panic if interest rates continue to rise in the near future. Who knows? You might even find that you end up saving money in the long run.

So what do rising interest rates mean for you?

Rising interest rates and falling house prices don’t have to be a cause for alarm for households. Overall, there are many things that you can do to prepare, like examining your financial position and not making unnecessary purchases on depreciable items like cars and furniture.  By taking a proactive approach, maintaining financial security, and shopping around for the best mortgage deals, you can weather rate rises and this transitional housing market confidently.

Need more help?

If you need help examining your financial position or require strategic advice on how to offset rising interest rates, Carbon Finance & Lending can help. Our finance brokers are waiting to help you continue to enjoy one of the greatest investments you’ll ever make: buying a home. Call us on 1300 454 174 or fill out the contact form below.

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DISCLAIMER: Credit Representative 460456 is authorised under Australian Credit Licence 389328. This page provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances. Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.