The four major banks in Australia joined the mortgage interest rate hike bandwagon to gain additional capital in what seems like a high-risk financial system. When it comes to lending, borrowers should understand that banks are only facilitators that help them buy a home. When rates rise, however, the burden falls upon the borrower. Even so, there are few tips that can help a borrower take control and ease the burden. Here are some tips:
Estimate and Budget for a future rate rise
Whenever there is a rise in mortgage interest rates, the first step is to determine how much more you will be required to pay. If your mortgage is larger, then the impact of the rate rise will have a larger impact on your repayment. Do some examples for yourself of what your repayment will be at 0.5% as well as 1% higher than your current rate. Knowing how much more you will be required to pay each month will help you with budgeting. We recommend you pay extra at every opportunity. But budgeting in advance for a rate rise can be a very clever way for you to be prepared.
Plan for a new budget
Once you have determined how much more you will be paying each month, make use of this information by adjusting your budget. Determine which expenses need to be cut down and which incomes would have to be diverted towards the repayment. In essence, we would recommend that you should keep up with your mortgage repayment and as mentioned before add a buffer to pay extra if you can. This will help in the future if finances get tighter. You can build up advance payments saving you interest and giving you a safety net.
Go for a split home loan
This is a good flexible option for those taking out a new or reviewing their current home loans. It can provide peace of mind. If you feel there will be a rate rise or you just would like to have a more secure repayment, a split home loan can help you take more control over your mortgage. This simply means allocating a portion i.e. 25% or 50% of your home loan to attract a variable interest rate while the other portion can be fixed for a period of time. Currently the fixed rates on offer are extremely attractive and will offer some security in the event of banks rising rates. If the variable rates increase then you will be partly protected as a large portion of your loan will not be affected by the rate rise.
Consider a Fixed Rate
As mentioned earlier the fixed rates on offer at the moment are extremely competitive. Lenders are tightening lending criteria and lenders are wanting to attract the Owner Occupied Mortgage as opposed to investors. What this has done is create a fixed rate market. You can take Advantedge of some of these amazing fixed rates which will provide you with peace of mind and allow you to feel secure with your budget. We still recommend you pay extra if possible. Most lenders allow extra repayments on a fixed rate. This is a great way to get ahead and prepare you for when the fixed rate term expires.
Look for an experienced broker
An experienced mortgage broker can look at your options and determine what might be right for your situation. A Mortgage Broker should be taking the time to know your financial situation as well as discussing your current and future requirements and objectives. This will help the qualified broker recommend lenders and products that meet your needs. If you are wanting to save time and money on your home loan like most people, then using a qualified mortgage broker would be highly recommended. Choose a Mortgage Broker who is qualified and takes the time to listen to you and also who has been around for long time. A company that has stability and the required accreditations and memberships should offer you confidence. Some Mortgage Broking companies do not only offer face to face appointments. This can make the process a little easier as they can assist you over the phone.
Negotiate Rates – Challenge you Bank
In a situation where your feel the mortgage interest rate is too high you can challenge your lender for a rate discount. Many lenders can offer this. People just don’t know that. Some mortgage brokers offer this to their clients to assist them instead of them refinancing. Sometimes refinancing can save you more than just a small rate reduction from your current lender, however at times just by challenging your bank for a rate reduction you can end up with a 0.25% reduction in your rate. Better in your pocket than theirs.
In summary, it is all about perceiving significant changes in mortgage interest rates before you can set up strategies that will put you two steps ahead of the bank. If you study the market well before taking the loan, these strategies may help you repay your loan at a lower rate even when there is a hike in interest rates.