As you have no doubt noticed by now, interest rates are rising. The Reserve Bank has already made two increases to the cash rate, with more almost certain to follow. As a result, variable home loan rates (and minimum loan repayments) will also rise.
So what should you do in response? Here are five suggestions:
1. Don’t panic. When your loan was approved, the lender had factored in a minimum 2.5-3.0% interest rate buffer on the expected repayments. This provides some assurance that your financial position at the time the loan was approved should be able to absorb rate rises like we are starting to see. If you have had any significant changes to your financial position, or a deterioration in income, savings (or both) please don’t hesitate to get in touch to discuss your situation more thoroughly before any further changes take effect.
2. Get ahead of any problems. If you think you might struggle to keep making your repayments, contact us or your lender directly now to discuss your options. It’s important you make contact before you miss a repayment, not after, because the more warning you give your lender, the more flexible they’re likely to be.
3. Budget for rate rises. Assume your mortgage rate will rise by 2%, and budget accordingly. We can help you calculate what your new weekly/fortnightly/monthly repayment might be, and you can prepare by starting to pay the extra now. You can put the extra money into an offset account, pay it into the home loan direct (redraw facility) or into a separate savings account – by getting ahead now, before any further rate rises, you will build a significant buffer ahead of any projected minimum repayment increases in future.
4. Improve your savings rate. Look for ways to increase your income and reduce your expenses – we can help with a review of your home utility connections with our Smart Select online comparison service and an updated home insurance quote from Honey Insurance, smarter home insurance that can save you up to 8% every year on your insurance premiums with a quote in just 3 minutes.
5. Switch to a better loan. The home loan market remains very competitive, which is why many lenders offer new borrowers lower interest rates than loyal customers. We can help you review your rate with your current lender, and determine if you could save money by switching to a competitor with a refinance.
If you are currently on a fixed rate: It is likely you will end your fixed rate period in an environment of higher variable interest rates (and therefore higher minimum repayments) than you have become accustomed to. Get in touch today if you would like to discuss your own personal circumstances, to better prepare for what to expect when your fixed rate expires.
It is also an ideal time to be reviewing any other ongoing repayments you are making regularly – if you have any personal loans, credit cards or car loans, you might be able to consider debt consolidation to reduce your monthly commitments, and provide more reassurance of your ongoing budget through this rate rise cycle.