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Home loan health check


5 tips to keep calm and in control of your mortgage during a changing market.

An interest rate rise is likely to mean a change for many household budgets. With more rate rises predicted, here are 5 things that can help you keep on top of your finances and feel in control during a changing market.

1. Do a home loan health check

Start by finding out exactly where you stand. Do you know exactly what your current rate and repayment amount is? Did you adjust your repayments as interest rates were decreasing? If not, you might be in advance of your repayments, which can help smooth the transition to a new rate.

Planning ahead for an interest rate rise is the best way to ensure you’ll be able to handle a change without it affecting your budget too much. Use a calculator tool to gauge how much extra you may need to set aside and factor in a rise to see how much more you could be paying in the long run.

If it’s been a while since you’ve taken out your home loan, there may be a better deal available. Your Loan To Value ratio (LVR) might have also changed during this time, providing you with more equity, so it’s worth comparing your current rate with others in the market and contacting your lender to see what they can do for you.

2. Consider a fixed rate

If you’d like more certainty, you could consider switching to a fixed rate home loan so you know what your repayments will be each month and to make it easier budgeting for other expenses. 

There are a few things to keep in mind though. An interest rate rise may mean you have to fix at a slightly higher rate and you may not have access to benefits like an offset account, redraw facility or making additional repayments. You can typically fix your loan for up to five years but be aware when that period comes to an end, your interest rate will revert to the standard variable rate. There can also be costs like break fees to consider if you decide to refinance, payout or make additional loan repayments during the fixed period.

One way around these limitations is to fix a portion of your loan or split your loan into two parts and make one part fixed and the other part variable. Chat to your lender to see what’s right for you.

3. Use your offset account

If you have access to a 100% offset facility, consider directing your salary and any lump sum payments or savings you may have into that account. Every dollar you have in that account will offset the interest you pay on your home, which could save you a chunk of money over time.

Ask your lender if an offset account is something that’s available for your home loan. As always, check if there are any fees involved with setting an offset account up and if it suits your current financial situation.

4. Revisit your budget

Start by reviewing your spending to see where you can trim. Look through your transactions to identify any subscriptions you might not be using, or to see where else you’re regularly spending money. Maybe you’ve signed up to multiple streaming services or you have a gym membership you never use. It’s also worth being mindful of your devices and the ads they serve up. If you find yourself clicking through to sites or leaning on buy now pay later services, try limiting the amount of time you’re spending on social apps to minimise the temptation of online shopping. 

Paying down your debts is also essential, especially credit cards, as they could be impacted by a rate rise too. There are several options to consider. If your debt is spread across several places, it might be worth consolidating so you only make one repayment at the lowest possible rate.

Get creative and look at other ways you can bring in some additional revenue. Do you have things around the house gathering dust that you could sell – clothes, furniture or sporting equipment? Have you reviewed your utilities or insurances to look for a better deal? Every little bit adds up. 

5. Seek some expert advice

If you’d like some help working out how an interest rate rise might impact your household finances, you could start by using reliable online resources and remember your lender may offer hardship options if you’re experiencing financial difficulty.

This article is intended to provide general information of an educational nature only. Information in this article is current as at the date of publication.

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