How changes in interest rates affect retirees and first-home buyers

Interest rates in Australia have a significant impact on the economy, with effects felt by a range of individuals, including retirees and first-home buyers.

The Reserve Bank of Australia (RBA) sets these rates, with changes influenced by a range of factors, including inflation, economic growth, and global events.

In this article, we’ll explore how variations in interest rates affect retirees and first-home buyers in Australia.

Interest rate rises a boon for retirees

Retirees are often reliant on savings and investments to fund their retirement, and interest rates play a crucial role in the amount of income generated by these investments.

When interest rates are high, retirees with significant savings benefit from higher investment returns. However, when interest rates are low, retirees face a reduction in their income, which can be challenging for those on fixed incomes.

Retirees who rely on interest-bearing investments, such as term deposits and bonds, may find themselves struggling to maintain their standard of living in a low-interest-rate environment.

Low-interest rates can also make it challenging for retirees to accumulate sufficient funds for the duration of their retirement, as their investments will generate lower returns over time.

This is why the current increase in interest rates favours retirees, making it easier for them to live off their savings comfortably.

First-home buyers lending down with interest rate hikes

Interest rates typically affect first-home buyers seeking a home loan or mortgage. When interest rates are low, the cost of borrowing money to purchase a home is lower, making homeownership more accessible for first-home buyers.

Low interest rates also reduce the overall cost of borrowing, which means first-home buyers can save money on repayments over the term of their loan. Conversely, when interest rates are high, first-home buyers may find it more challenging to secure a home loan as the cost of borrowing increases and repayments become unaffordable.

And with many first-home buyers wanting everything to be new all at once and the latest smart home technologies, it’s crucial to prioritise expenses and make sure not to exceed one’s budget. There’s really no need to have everything at the same time, especially in this challenging market.

In fact, among those with existing home loans, the current rate hike can mean an additional $170 per month on interest payments for average mortgage holders. This can add more stress to households already struggling with the high costs of food and energy products.

Other factors at play

It’s important to note that changes in interest rates are not the only factor that affects retirees and first-home buyers. Other factors, such as the availability of affordable housing and access to financial advice, also have a significant impact.

Therefore, financial planning and getting timely advice from an expert are crucial. 

So, wherever you are in your financial journey — whether you’re saving up for retirement, investing or shopping for your first home, speak with a financial adviser first to get the complete picture.

If this article has inspired you to think about your own unique situation and, more importantly, what you and your family are going through right now, please contact your advice professional.

This information does not take into account the objectives, financial situation or needs of any person.

Before making a decision, you should consider whether it is appropriate in light of your particular objectives, financial situation or needs.

(Feedsy Exclusive)


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