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Moving on up: you and interest rates

interest rateYou would have seen over the last few weeks that lenders have started to raise their variable home loan rates.

We spoke it about it here previously, suggesting that a rate rise was imminent.

But now that it’s happened, what can you do about it?
 

Find out what your lender is doing

Usually when one of the big 4 banks makes a move, the rest will follow.

That’s because the first bank to move their rates generally gives the others cover. The first lender takes all the heat and the rest can follow with minimal media coverage.

The lenders tend to pick their timing though. If they move too early, they risk being associated with the first lender to move their rates. If they move too late, the cover provided may have worn off.

Since it’s now a few weeks since the first announcement of a rate increase, it’s likely that your lender has advised what they’re doing with their home loan rates.

Did you take the time to open the letter?

Have you considered how the change will affect you?
 

What you can do

Ok, so if your interest rates are on the way up, what can you do about it?

Well, first and foremost you can visit us for a home loan health check where we can run you through the options below:

Shop around: Lenders are always jostling for new customers with competitive deals. If you haven’t reviewed your loans recently, chances are you’re missing out. Reviewing your loans doesn’t always mean changing banks, either. If there’s a better rate elsewhere, there’s a good chance your current lender may match it.

We’ve been pleasantly surprised at the willingness of lenders over the last while, to extend discounts to their existing borrowers. This hasn’t always been the case and may suggest a welcome move on the lenders part to take better care of their existing borrowers, rather than always focusing on just securing new business. Only time will tell!

Lock in a rate:┬áIf you are worried about further rate increases and prefer the certainty of knowing exactly what your repayments will be each month, now might be a good time to lock into a rate you’re happy with. You can find more about fixed rates (and tools you can use to help work out what interest rates may be up to over the coming months) here.

Consolidate your debts: If you have a credit card, car loan or other personal loans, you might also have the option to save money by refinancing and consolidating them into one loan. This will give you one simple repayment to make each month instead of a bunch of them. Also, since the rate on your home loan is much less than a credit card rate, you have the potential to save on interest costs. But, you need to be disciplined with this strategy and make the effort to pay down this part of your loan. Otherwise, you’ll just end up paying back your credit card debt over 30 years – which is going to cost you a lot more interest in the long run.
 

Final word

Of course, the best protection against increasing interest rates is to owe less to the bank. That way, as rates change, the impact to your household finances won’t be so dramatic.

Whilst the best strategy for you will of course depend on your loan structure and longer term goals, if you can manage it, we suggest you take small steps now to get ahead.

This could mean:

  • Paying a little extra each month into your loan and/or
  • Converting your loans to Principle & Interest and/or
  • Getting serious about building up cash your offset account.

Little steps can make a big difference over the long term. But not if you don’t first make the commitment to improving your position.

 

 

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