With interest rates at record lows, it’s a nice time to own property! But there’s no room for complacency. Now is the time to shore up your finances so that if, and when, rates climb higher, you’re well placed to handle higher repayments.
Know where you stand
Knowledge is power, and it’s important to have a clear idea of how your finances could be impacted by an interest rate hike. Start by reviewing your latest home loan statement to confirm the balance of your loan and the rate you’re currently paying.
Next, use an online Repayments Calculator to see how your repayments would change if rates rose by 0.25, 0.5 or even 1 per cent.
If it looks as though higher rates could squeeze your budget, you could try some of the steps below to prepare for possible rate hikes.
Get more bang for your buck today
If you’re only making minimum repayments on your home loan, see if you can afford to pay a bit more. Not only will this cut dollars off your loan, it will also boost the equity you have in your property, and that can be a big plus if you need low cost funds for, say, home improvements, further down the track.
Be smart with spare cash
Holding spare cash in a savings account that pays interest of around 3 per cent (at best!) doesn’t make good financial sense when your home loan rate is around 4.5-5 per cent.
A smarter strategy can be to park savings in your home loan. You could save more on interest than you would earn on a savings account, and thanks to loan features like redraw or offset accounts, your money is available if you need it. In the meantime, your funds are helping to reduce your home loan and this means further savings on interest costs.
Slash high rate debt
Home loan rates may be low but the same can’t always be said of credit card debt or personal loans. Taking steps to reduce high interest debts today should leave you better placed to manage higher home loan repayments if and when rates rise.
Think about fast-tracking future plans
If rates start heading north you’ll be paying more interest for the same property, so if you’re ready to buy fast tracking plans to take advantage of low rates may save you some money. As an added incentive, the property market in many areas has experienced significant price growth over the last 12 months, and your current home could be worth more than you realise. It can mean more equity to fund your next place.
Consider a fixed rate
If you’re concerned about future interest rate rises, locking in a low fixed rate can help to protect you against rate rises for your fixed term. This helps to give certainty about repayments as well, which can be helpful for anyone on a tight budget.
Ask for a lower interest rate
Before your bank has a chance to put rates up, or even after, why not jump in and ask them to give you a better deal. If you’ve had your home loan for over a year and are a pretty good customer, asking for a better rate can’t hurt, and could save you money.
How are you preparing for possible rate rises? Tell us in the comments below.