Top Tips for Coping with Rising Interest Rates

Are you feeling the squeeze of those extra few dollars on your mortgage repayments due to rising interest rates?

There are a few simple steps that consumers can consider to help manage their home loan in changing interest rate conditions.

For those borrowers who are feeling the pinch of rising interest rates or who are concerned as to how they will cope if rates rise further, it may be worth reassessing the current conditions of your mortgage to see if there are ways you can save.  If you are looking at taking out a home loan, thoroughly consider all your options before committing to a loan to ensure you have the most suitable product for your needs.  

Here are some Top Tips from Mortgage Choice, Australia’s largest independently-owned mortgage broker, to help you cope with rising interest rates.

Consider fixing part, or all, of your loan
If you are working to a tight budget and want peace of mind that you will be able to afford your repayments for a fixed period of time, you may want to consider fixing part, or all, of your loan.  You should weigh-up costs associated with fixing your loan, together with the higher interest rate you may pay at a fixed rate.  Keeping part of your loan at a variable rate will also allow you to make extra repayments without penalty.

Consolidate your debts
As interest rates rise on mortgages, so too do they on personal loans and credit cards.  Consider rolling all your debts into your mortgage, so instead of paying up to 17 per cent on other debts such as cars, credit cards and personal loans, consolidate them all into your home loan, so you are paying only around 7 per cent.  

Assess your current loan product and possibly refinance
If you currently have a loan that offers features that you are not using (eg. offset, redraw), consider changing to a basic product without the ‘bells and whistles’ that may offer a cheaper interest rate.  For example, on a loan of $250,000 over 30 years, the change from 7.07 per cent (standard variable) to 6.57 per cent (basic variable) is a saving of approximately $83 per month.

Reduce your loan amount with a lump sum payment
If you have some money sitting in the bank or that is not being used for anything specific, consider investing it into your home loan.  The difference between a $250,000 loan and a $200,000 loan over 30 years at 7.07 per cent is around $335 per month.

Ask for a one-off payment variation, permanent reduced payments or hardship variation
Each of these options means your loan term will increase but you will feel more comfortable with your repayments. The first two options are self-explanatory, while a hardship variation can be requested if your loan is less than $125,000 and you cannot cover the repayments due to unemployment, temporary illness or another logical reason. You may even be able to postpone your payments under the Uniform Consumer Credit Code. If you have difficulty getting your lender to agree to new payments terms contact a financial advisor. And make sure you ask your lender about any fees these variations will incur.

Factor into repayments further rate rises
If you are looking at taking out a loan, or are reassessing your current loan, it is a great idea to factor into your repayments further rises in interest rates, and if possible, make your contributions at the higher rate ASAP.  It will not only ease the stress when your repayments increase, but making extra contributions will also put you ahead of your scheduled loan term.

Distinguish between those things you ‘need’ and ‘want’
Work out what things in life are most important to you and distinguish between things you ‘need’ vs. ‘want’.  Look at small luxuries you may be able to forego and contribute that extra money to making up the difference in your mortgage repayments. You could even consider selling your property or other assets with a relatively high monetary value.


* The above tips should act as a guide only and consumers should check with their lender or broker to investigate options fully.