In 2022, home loan interest rates began to rise slowly. How can you prepare for an interest rate rise?
Why are Interest Rates Rising?
In May 2022, the Reserve Bank of Australia (RBA) raised the cash interest rate by 25 basis points to 0.35%, first rate increase in more than 11 years. And most banks passed on all the interest rate increases to their borrowers.
How to Deal With the Rise of Interest Rates?
For those who have mortgages, the rise of interest rates will definitely bring more pressure to their finances. And today, we will discuss some good ways to deal with the rise of interest rates, for your information.
Speak to Your Mortgage Broker
If your mortgage accounts have been with the same bank for years, then you might need a home loan health check from your mortgage broker.
Your mortgage broker can help with:
Assess your situation in full and find out if your mortgage has a good interest rate;
If not, help you refinance your home loan to a lender that will offer you a sharper rate and cashback;
Negotiate with your bank on your behalf and try to get a better rate discount.
You should consider refinancing if:
Your property value increased in the last few years;
You are on a variable rate;
Your mortgage rates are quite high in the market, and your bank couldn't offer more rate discount.
Consider Fixing Your Loans
With the increase in interest rate, if you choose a variable rate, your mortgage repayment will also increase. However, if you choose a fixed rate, you don't need to worry about the increase of interest rate in the fixed period.
Apart from fixed rate, you can also choose partial fixed loan, or a rate lock facility if you are currently applying for a loan.
Utilise Offset and Redraw Facility
If you are currently making minimum loan repayments, then making extra repayments and utilising offset and redraw facility, can help you minimise your loan interest charge. And the extrea repayment is also your saving buffer, that can reduce part of your repayment pressure.
Offset and redraw facility can also allow you to access the funds when you need them.
Make a Long Term Plan
Apart from focusing on your mortgage, making a long-term plan is also essential to put yourself in a better financial situation. As for the next few years, Australian banks are likely to keep increasing mortgage interest rates.
Set a long term budget, and make sure the mortgage repayments are affordable;
Cut unnecessary spending;
Clear your Debts, and pay down credit cards and personal loans as they have high interest rates;
Switch from Interest Only to Principal & Interest repayments, because Interest Only loans have higher rates.
The interest rate has begun to rise in 2022. How to choose banks and loan products? Contact Moremore Finance for more in-depth communication.
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