Reflecting on the year that was - 2025

As 2025 draws to a close, many Australians are reflecting on the financial shifts experienced throughout the year and preparing for what lies ahead. Interest rates have been a central focus, with steady increases shaping borrowing costs and household budgets. Looking toward 2026, further interest rate hikes are anticipated, making it crucial to plan carefully to avoid financial strain.

Economists expect the RBA to continue raising rates into early 2026, though the pace may slow depending on inflation data and economic growth. This outlook means borrowers should prepare for further increases in borrowing costs, which could add hundreds of dollars to monthly repayments.

The Importance of Budgeting for Interest Rate Increases

Budgeting is essential to managing the impact of rising interest rates. Households that plan ahead can reduce financial stress and avoid unexpected shortfalls. Here are some practical budgeting tips:

• Review your current expenses and identify areas where you can reduce discretionary spending.

• Build an emergency fund that covers at least three months of essential expenses, including mortgage repayments.

• Use online calculators to estimate how higher interest rates will affect your loan repayments.

• Consider refinancing options to secure better loan terms or switch to fixed rates.

By proactively adjusting your budget, you can create a buffer against future rate hikes and maintain financial stability.

Benefits of Fixed-Rate Loans in a Rising Rate Environment

Fixed-rate loans offer certainty by locking in an interest rate for a set term, protecting borrowers from future increases. Currently, fixed rates for two-year terms start at around 5.19%, which can be attractive compared to variable rates that may rise further.

Why choose a fixed-rate loan now?

• Predictable repayments make budgeting easier.

• Protection against rate hikes reduces financial risk.

• Potential to pay off your loan faster if rates rise and you refinance or switch back to variable later.

Fixed-rate loans are particularly useful for borrowers who want to avoid surprises and

Many borrowers consider splitting their home loan into fixed and variable portions to balance flexibility and security. Here’s an example to illustrate potential savings and loan term reductions:

Fixing part of your loan can reduce exposure to rising rates while keeping some flexibility to make extra repayments or benefit from rate drops on the variable portion.

Advantages for First Home Buyers

First home buyers face unique challenges in the current financial climate, but several government programs can ease the path to homeownership.

• Low Deposit Scheme

This scheme allows eligible buyers to purchase a home with as little as 5% deposit without paying lenders mortgage insurance (LMI). It reduces upfront costs and helps buyers enter the market sooner.

• First Home Super Saver Scheme (FHSSS)

The FHSSS lets buyers save money for a home inside their superannuation fund, benefiting from tax advantages. Withdrawals can be used for a deposit, boosting savings faster.

Preparing for 2026 and Beyond

As interest rates continue to evolve, staying informed and proactive is key. Consider these steps:

• Review your loan structure annually to ensure it fits your financial goals.

• Keep an eye on economic updates and RBA announcements.

• Consult with a financial advisor or mortgage broker to explore options tailored to your situation.

• Use government programs if you are a first home buyer to maximize support.

By taking control of your finances now, you can reduce stress and build a stronger financial future. Please get in touch if you wish to review your position of if you are looking at property over the holiday period. I can provide an obligation free borrowing power assessment so you can make an offer with confidence.