3 ways to prepare your finances for a home loan rate increase

Published on November 20th, 2020
  Written by 
Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
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A home loan rate increase of even 2% can wreak havoc on many Australian households. However, there are ways that you can create a buffer against a potential mortgage rate increase. Here are three ways to better prepare your finances.

Is your current mortgage suitable for your finances?

Checking if you are able to afford your mortgage before signing for it is essential. This also means thinking of how the loan terms will affect your repayments in the long run. In general, you should ask yourself if you will still be able to afford your loan if it were to increase by 2% to avoid biting off more than you can chew.

However, if you already have a mortgage it is important to review it constantly to see if you are still getting the best rate. If not, you could consider refinancing your loan. Make sure to check if you will be getting a better interest rate and if the loan won’t come with fees and charges that could make you worse off than before.

Not everyone will be able to afford to refinance their mortgage, which means looking for alternative ways to handle the costs. Checking your budget and where you can potentially cut back can be one way. You could also consider using an offset account feature to help reduce the way that you pay off your loan.

Seek and you shall find

Some Australian home loan holders get hot around the collar when it comes to asking for a lower rate, but this could be a lifeline to managing your mortgage. According to News.com.au, 41% of Australians negotiate their mortgage rate, but this means 59% of home loan lenders don’t. This could result in them missing out on saving thousands of dollars off their mortgage.

Before you ask it is good to research what other lenders are offering. A comparison website can help you get quick access to hundreds of loans with their various rates. You could also approach a broker who will be able to quote you rates that are suitable for your finances at no additional cost.

Make extra repayments

You may have a mortgage where the interest rate has not yet increased which means you have ample wiggle room to lower the amount that you currently owe. Whenever possible try to make more than the minimum payment and try to make them as frequently as your finances allow you to.

You can consider opening a savings account to put aside money that will be used to reduce your mortgage. Always remember to budget. Having a budget not only shows you areas where money is being wasted, but it can also show you areas in which you can cut back to save.

If you are struggling to make repayments it is vital to speak to your lender as soon as possible as this will give them ample time to give you options that are suitable for your situation.

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This guide provides general information and does not consider your individual needs, finances or objectives. We do not make any recommendation or suggestion about which product is best for you based on your specific situation and we do not compare all companies in the market, or all products offered by all companies. It’s always important to consider whether professional financial, legal or taxation advice is appropriate for you before choosing or purchasing a financial product.

The content on our website is produced by experts in the field of finance and reviewed as part of our editorial guidelines. We endeavour to keep all information across our site updated with accurate information.

Approval for home loans is always subject to our lender’s terms, conditions and qualification criteria. Lenders will undertake a credit check in line with responsible lending obligations to help determine whether you’re in a position to take on the loan you’re applying for.

The interest rate, comparison rate, fees and monthly repayments will depend on factors specific to your profile, such as your financial situation, as well as others, such as the loan’s size and your chosen repayment term. Costs such as broker fees, redraw fees or early repayment fees, and cost savings such as fee waivers, aren’t included in the comparison rate but may influence the cost of the loan. Different terms, fees or other loan amounts may result in a different comparison rate.

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