If you’re among the millions of Australians with a mortgage, then you’re probably keeping a close eye on interest rates. With the RBA announcing that it expects to be raising the official interest rate further throughout the remainder of the year, it’s more important than ever to make sure your mortgage payments are aligned with your budget. Here are a few tips for managing interest rate hikes and ensuring that your home loan repayments remain within reach.
For most borrowers, their mortgage is their single biggest debt obligation. So when interest rates start going up, it can have a serious impact on your monthly budget. If you’re not prepared for it, you could find yourself struggling to make ends meet each month. But don’t panic! There are things you can do to prepare for rate hikes and keep your finances in check.
Follow these tips to help manage your finances and stay in control while interest rates climb.
Make a budget and stick to it – this will help you stay on top of your finances and ensure you’re not overspending.
Understanding where your money flows every week or every month is important for anyone. If you don’t have one, create a budget that has your income and all of your expenses included. Ensure that you have captured everything, including major expenses (such as loan repayments, groceries, bills, travel, and fuel expenses) and also smaller expenses and luxuries, including take-away food, homewares, and personal gifts. Once you have an idea of your cash flow, you can start to make more informed decisions about your spending.
Cut back on unnecessary expenses – like eating out, subscription TV services, or buying unnecessary items.
It might sound obvious to some, but when times become a little tougher, it’s a good time to look at where your money is going and try to reduce your habit-spending where possible. We tend to forget about smaller purchases such as take-away coffees, extra Stan and Netflix accounts, or minor impulse purchases. Creating a budget is important, but reducing your overall spending is the main objective if you find yourself needing to free up some extra cash to make way for increased repayments. Try and limit your spending to a fixed amount each month.
Shop around for the best interest rates on loans and credit cards
The good news about rate hikes is that they can fuel competition amongst the banks and lenders. If you are in a position where you have a good track record with your recent repayments, and have healthy activity in your accounts, you may be in a good position to renegotiate your current loan or shop around for a better deal with another lender. GA Finance can help you work out the best options for your situation.
Look at increasing your repayment frequency
You might be paying more than you need to on your home loan repayments. Consider changing the way that they are paid, from monthly cycles into weekly repayments. This small change can help save interest over time and may even help you get ahead of your payments.
Increase your repayment amount if you have capacity
Whilst interest rates increase, and repayment amounts go with it, it may actually make more sense for you to put even more money into your mortgage now to help save in the long run. If you are lucky enough to be in a position where you can afford a little extra, even with the increases, then this will help reduce your overall time to pay off the loan and may save you thousands of dollars over the term of the loan. Have a look at our additional repayment calculator to see how this might impact you.
Understand your options – if you’re struggling to make ends meet, there are options available that may offer help.
Speak to your current lender about your circumstances, and see if they have available options to defer, pause or reduce your repayments if you are suffering from financial hardship. Many lenders in Australia offer a hardship policy, and you should speak to them if you feel the situation is becoming too difficult for you to manage.
Stay positive and don’t give up – rising interest rates can be challenging. Talk to an expert lender if you need help understanding your options.
GA Finance is committed to helping Australian borrowers get the most value from their lending. We help you create a financial plan that works for you and your individual circumstances, and we can help you make the right decision about managing your home loan. If you want to discuss your options with us, speak to the GA Finance team today.