Prepare for Rate Rises: 5 Simple Tips
The Reserve Bank has indicated that at some point, it will raise interest rates. Many experts are stating that these rates could start to rise over 2022. For many first home buyers and property investors across Australia, these rate rises have the potential to create mortgage stress, where interest and repayments are over 30% of a household’s income. This article, written by Vision’s award-winning property and finance experts, outlines 5 tips to help borrowers prepare for rate rises and reduce the likelihood of mortgage stress.
1. Calculate Your Loan Repayments
The RBA will look to ease interest rates up slowly. It is key for mortgage holders to understand how these rate increases will affect their mortgage repayments. How much of an effect would a 2% increase have on your monthly repayments? You can find out the effect of one of these increases using our calculator here.
2. Get Ahead On Your Mortgage Now
With interest rates at the lowest point they’ve ever been, many borrowers aren’t aware of the cost of interest at normal rates. Borrowers need to be proactive, and “make hay while the sun shines.” Pre-paying larger repayments now means that you have to pay less of the loan later when interest rates rise. Being ahead of your repayment schedule gives you greater financial flexibility with your loan repayments, with this flexibility being desired with the rising costs of living.
3. Increase your Saving Rate
Rate rises will lead to an increased cost of living. A way to mitigate this is to effectively budget and look at ways to increase income and reduce expenses. Cutting down on unused subscriptions, setting limits on how many nights a week you eat out at a restaurant/pub, and looking at cheaper ways to entertain yourself and your family are all ways you can increase your savings rate. Find more ways here.
4. Chat With Your Lender
You’d be surprised with how flexible lenders can be in negotiations with their borrowers. Your interest repayments are a source of revenue for lenders, and they will go to lengths to ensure that you are happy and continue to loan with them. To better prepare for rate rises, you might be able to negotiate a lower rate or a repayment schedule that better suits your needs as a borrower. If a lender is being hesitant to provide you support, advising them that you are looking at other options is a way to get them onside.
5. Weigh Up Refinancing Your Loan
Refinancing your loan to a fixed-rate option may prove as a method to help you prepare for these rate rises. This could be with your current lender, or at another lender with better rates. There are some costs involved with this, so it is important to look at the long term benefits before making the switch.
Vision Property and Finance’s award-winning experts have navigated changing interest rates for our clients for over 20 years. If you are interested to see how we can secure your financial future, get in touch here.