How to tackle rising mortgage rates
Right now, anyone with a mortgage will be feeling the pinch of rising interest rates. After an extended period of stability for homeowners, 2022 has seen some of the fastest rate rises on record – and we still don’t know when these incremental increases are likely to ease.
If you’re a homeowner grappling with higher repayments, here are some useful tips to help you ride the wave while maintaining your lifestyle and minimising financial stress.
Rethink how your loan is structured
The impact of rising rates can be affected by how your mortgage is set up. For example, if all or a significant portion of your loan is subject to a variable rate, your repayments are likely to noticeably increase in line with rate rises. If it looks like rates could continue to trend upwards over the long term, it might be worth negotiating a fixed rate for your entire home loan, or even just for a more substantial portion.
On the other hand, if your fixed rate is nearing the end of its term and you anticipate rates will trend downwards in future, you may wish to switch to variable for all or a portion of your loan to ensure you capitalise on lower rates. Otherwise, your rate could be refixed at the peak for longer than necessary.
Find cost savings to help manage higher repayments
Meeting your repayment obligations as rates rise can be a challenge, especially when your household income is unlikely to be rising at the same pace. In this case, it could be worth re-evaluating how you might be able to save money elsewhere to meet the shortfall. For example, you might be able to lower other household expenses such as electricity, internet, and mobile plans by simply switching providers. Or perhaps you might even have one or two more streaming services in the household than you really need.
Make more frequent payments
Indeed, rising interest rates means the cost of your home loan over its entire lifespan will be greater. Believe it or not, one way to curb the amount of interest you pay through the duration of your loan term is not by digging deep into your pockets to increase your repayments, but instead, by making repayments more often.
While most home loans are paid monthly by default, making repayments on a fortnightly basis will save you money in the long term. Why? Because interest is calculated daily, chipping away at the principal of your loan every two weeks means your interest is calculated on a lower loan amount for the second half of every month compared to making repayments monthly. And the difference adds up over the years.
Use an offset account
Many households like to have the security of a savings account which promises to give you access to funds whenever you need them. But you can make your savings work to your home loan’s advantage without the irreversible commitment of making additional voluntary repayments.
With an offset account, you can use it just like a regular transaction account but the balance at any given time is offset against the principal of your home loan (like a repayment), reducing the amount of interest you’ll otherwise need to pay.
For more information on our current rates and refinancing options, get in touch with us today.