With interest rates constantly rising，if you have a variable rate loan, your monthly payments are starting to get higher. But borrowers on fixed rates won’t feel the effects of rising rates until the end of their fixed term.
How are Fixed Interest Rates Affected?
Although fixed rate borrowers are protected from interest rate hikes for the time being, this won't be for long. Longer fixed-term interest rates are higher, and this is because banks are considering future increases in cash rates to cover their costs. You can choose to lock in another fixed rate when the current rate ends. No matter what you decide, you're likely to face higher payments.
How to Prepare for Higher Home Loan Repayments?
Take Action on Your Loan
The first step in getting ready for increased mortgage repayments is being proactive about your home loan when your fixed term is ending. Instead of leaving your loan to revert, look over your options carefully. It could be worth doing some research to see what type of loan – fixed, variable or split – will meet your needs and help keep your repayments down. If you call the bank's mortgage department, you may even be offered a better interest rate discount.
Make Extra Repayments
If your fixed-rate loan allows some extra repayments, using this feature is a great option. Making extra repayments up to the fixed term cap can give you a buffer when rates rise.
Review Your Household Budget
Reviewing your household spending before your fixed rate expires can help you find ways to save money. With a high cost of living, it can be difficult to save money on everyday expenses like groceries. But you can seek better deals from your electricity, internet and insurance providers. You should also reconsider discretionary spending on things like takeaway and entertainment to make room in your budget. If you are still paying interest charges for some high-interest lending products like credit card and personal loan, maybe it is now a good time to review those options, and use a debit card instead.
Break and Fix Again
Another option is to break the fixed term before it ends, and fix it again before rates rise further. By doing this, you can anticipate future rate increases and protect your mortgage payments from interest rate fluctuations. But carefully consider whether the cost of breaking a fixed term now would outweigh the savings you would make by raising interest rates.
Save Interest with an Offset Account
If you haven't fully utilized offset account, it is now a good time to look further into it. Using offset account as your salary credit account could potentially save you lots of money, as every dollar counts. Some banks even offer offset facility to fixed rate home loans. And there might be fees involved in offset facility so it's important to calculate whether your interest savings will outweigh the overall costs.
Refinance Your Loan
Before your fixed-rate term ends, talk to your mortgage broker or financial adviser. If your current lender isn't that competitive, refinancing could bring more benefits to you. Moremore Finance is always here to help you with better mortgage options.
Comments