If and when the Reserve Bank of Australia (RBA) announces that the official cash rate will increase, there are a number of strategies that borrowers can implement to prepare for a rate rise.
When interest rates rise, the methods that home owners can implement will not only help them take advantage of any low or stable rates, but also help them to prepare for a rate rise.
In order to better prepare for a rate rise, borrowers can do the following with their mortgage:
Obviously any rise in interest rates will mean higher repayments for those with variable rate home loans, so borrowers should make extra repayments to their current home to get used to the higher rates. This will accelerate your repayments, reducing your loan size, saving you in interest and cutting months or years off the term of your loan.
Before accelerating your repayments check with your lender that there are no fees associated with this.
It is extremely beneficial that every 12 months or so borrowers should do a health check on their mortgage. This process will ensure that you are not only getting the best rate available, but it allows you to save in repayments and keep you up-to-date with the mortgage market. Compare home loans online to see what other lenders are currently offering for their home loans and if you can find one that offers a lower rate than what you are currently paying. If so, perhaps you should consider refinancing.
Be sure to determine the fees involved for making the switch and work out if you refinancing is the best option for you.
Compare fixed and variable home loans
If you think that rates might increase further in the future and the current interest rates are low, perhaps you should consider fixing your home loan.
If you are not sure, you could either chose a variable rate loan or consider a split home loan where part is fixed and the rest is variable. The major benefit of split loans is that they can reduce the impact of rate movements because regardless of whether rates increase or decrease, only a portion of your loan will be affected rather than the whole lot.
We can all do our best to prepare for an interest rate rise but what it really comes down to is keeping an eye out for competitive home loans. Compare thousands of Australian home loans using the RateCity home loan comparison tool and mortgage repayment calculator.