How to hold the fort should the rate rise

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.
Our authors
, updated on November 25th, 2021       

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Despite the RBA holding the cash rate at 1.5%, Australians are still feeling the economic pressure when it comes to home loans. If you are feeling a little bit hot under the collar due to the economic pressures that are imposed by an ever-increasing home loan and other financial obligations, you are not alone. These five simple steps will help you ease off the stress of your home loan should there be a rate increase.

You can negotiate a home loan rate that is affordable

Instead of using your usual set and forget method when it comes to your home loan the best way is to constantly review if your home loan rate meets your current financial situation. Nearly 40% of Australians are not aware of their home loan interest rate, which can make a huge difference in you saving thousands of dollars or falling into a deficit of thousands of dollars should there be a rate increase. You can always negotiate for a better rate or find greener pastures elsewhere.

Buy what is within your reach

If you are not a homeowner and you are on the market to purchase a house always keep in mind to purchase what you can afford. It’s not how much you can borrow, but how much can you afford to borrow. When you buy your house or scour for a home loan quote think about whether you would still be able to afford it should there be a rate increase. Would you still be able to afford the repayments should you find yourself unable to work for whatever reason? It always best to think ahead

Use the offset account feature

Some home loans have an offset account feature. This feature that is attached to your mortgage comes in handy when you want to deposit money that will offset the principal of your loan. This, in turn, will reduce the interest you will have to pay. You will have to discipline yourself not to go into your offset account to pay off other things as this will bring you back to square one.

The type of credit card you have also plays a role

Household debt is one of the largest debt that Australians have to deal with. The household debt to income ratio currently stands at almost 200%, which the Australian Bureau of Statistics reported as $2.466 trillion. Your credit card could be the reason why you could fall into debt quicker than a person in quicksand. It is also important that your credit card interest rate and features are something that works with your finances. If there are any outstanding payments on your credit card you need to have it sorted out as soon as possible before an increase comes around.

Strike while the rates are low

Fortunately, the rates have not yet increased. This means that now is the perfect time to make extra payments on your repayments. You might feel a bit hot under the collar at the thought of making extra payments, but your future self will thank you when it comes to the rate increase. By then you would have decreased the amount you owe that the increase will have little effect on you.

This does mean making a few healthy cuts from your budget on things that you don’t need. If you find yourself struggling to find places to make a cut you can always speak to a financial advisor who will help you make a sound decision.

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