How to Prepare for an Interest Rate Rise
With interest rates tipped to rise as the RBA begins to return the cash rate to a more normal level, homeowners are wondering what the best way to handle this new environment might be.
Many borrowers would never have faced a cash rate rise, given the RBA hasn’t hiked rates in over a decade. Fortunately, there are a number of things you can do to prepare for an interest rate rise.
Look for a lower rate
If you haven’t reviewed your home loan in a while, it might be worth speaking to a mortgage broker so you can compare other interest rates and home loan products on the market.
There can at times be lenders that offer competitive introductory rates, or there might be more suitable home loan products for your personal circumstances.
You never know unless you speak to a broker and compare your options.
Think about the end of your fixed rate
Over the past few years, there has been a big rise in the number of people taking out fixed-rate home loans.
This has proven to be a beneficial move in the short-term, with many borrowers having been able to lock in record-low interest rates.
However, as these loan products come to the end of their term, borrowers will have to look closely at their options. Typically, at the end of a loan term, you can revert to the standard variable rate that comes with the lender’s loan product, refinance to a new home loan product or look to fix your rate again at what will potentially be a higher interest rate.
It’s well worth comparing your options ahead of time so you know what you are likely going to need to think about beforehand. You can compare your options and how the subsequent repayments might change in the future so you can position yourself with a solution that is right for your personal circumstances.
If your repayments are likely to move higher, then it’s worth being proactive and making sure you have a good financial plan already in place. Speak to a broker about what that might look like, so you know what you need to do.
You can look to put money away in advance if required or put together a budget that will help you manage your repayments.
If you’ve taken out a loan in the past few years, it’s likely your rate has been assessed with a serviceability buffer on your loan application. That should give you the confidence that the future repayments are still well within your budget.