With interest rates destined to rise in the future, NOW is the time to consider preparing yourself.
Firstly, it’s important to understand the impact of any future rate rises on your current loan repayments. The table below provides an indication of the additional monthly repayments that would result from interest rate increases using the rate of increase as a guide:
Extra Monthly Repayments°
|Loan Amount/ Rate Increase||+0.50%||+1.00%||+1.50%||+2.00%|
° Assumptions: This is based of the current interest rate being 5.50%, variable principal and interest payments: 30 year term and serve as approximate values not definite.
Instead of waiting for interest rates to increase and incurring the higher repayments unprepared, you should consider the following proactive options:
Make Extra Repayments Now
Making additional repayments to your loan now as if the above increases have already occurred will prepare you for when actual rate rises come into effect and will allow you to adjust your budget and finances way ahead. In the meantime this will help you to reduce your loan.
Reduce Your Loan Balance
By reducing your loan balance you will reduce the impact of any rate rises. Contribute your savings or any additional funds to your loan. If you have a redraw facility attached to your variable rate home loan you can still access these monies if required.
Split Your Loan and Partially Fix
Want to benefit from current low rates but also cushion yourself from rate rises then you should consider splitting your current loan and fixing a portion of it. This will provide some certainty for part of your repayments and still allow you to retain the flexibility of a variable rate loan for the remaining part.
Refinance to a Cheaper Loan
If you are on a high rate loan due to previous credit impairment or limited financials
(low doc) you may want to find out if you are now able to refinance to a more
competitive rate loan.