Today the RBA is tipped to raise interest rates again. Whether by a quarter percent or by half we'll have to wait until this afternoon to find out. But whatever it is, most economists are predicting there will at least be SOME change to interest rates.
If it's this month or next month, the general consensus is that rates are on their way up from generational lows. Like most things, interest rates travel in cycles. What goes down, must eventually come back up.
With higher interest rates in mind, here are 7 Survival Tips you can refer to over the next 12 months as we find out just how high the RBA will lift interest rates...
1. Plan now for higher interest rates. Economists are pointing to interest rates around the 6.5% level over the next 2 years. While no one can accurately predict where rates will be, it seems evident that this will be going up to some degree. Start making adjustments to your budget so that you will be able to handle rate rises. Calculate what your monthly repayments would be if rates went back to 7.5%. Planning now can save you a lot of stress in the future.
2. Pay extra from the outset of your new loan. Even paying an extra $50 on top of your repayments can take years off your loan and save thousands of dollars. If you pay more from the start it can be easier than paying more simply when interest rate rises. You’ll be used to the extra payments being a part of your budget.
3. Consolidate debts. Most people may have a car loan, a home loan and one or perhaps several credit cards. By combining these loans under one roof you can save. Other credit facilities typically rise along with the official rates. By combining your debts you can pay them off at your home loan rate instead of the higher car and credit card loans which can be north of 12%.
4. Use a Line of Credit. A line of credit is like a giant credit card. You pay interest on the balance of the loan. When you get paid, put it into the loan. While it sits there it will be saving you interest. You can even set things up so that all of your monthly bills get paid out of your loan account. The more money you can ‘park’ on your loan, the more you will save. A Line of Credit can be a great tool to help you pay off your mortgage soon too, but requires a little know how and a lot of discipline. Talk to Go Mortgage to see if a Line of Credit could work for you.
5. Make the most of redraw. This can work similar to a Line of Credit. If your mortgage has a redraw facility, try to build up as much as possible when rates are low. This way you can build up a buffer for when times are tougher. You can always redraw the money at a later time if needs be.
6. One of the easiest ways to pay off your loan sooner (and cut your interest bill) is to shift from monthly to fortnightly repayments. Fortnightly repayments reduce the principal, giving you more equity and ultimately, lower loan costs. Fixing your rate could also be an option, although presently the banks have factored in the higher rates into their fixed offerings. Still, this could be an option for you to talk about with your Go Mortgage consultant.
7. Employ a debt reduction strategy. Use an investment vehicle such as property to pay off your home quicker. You can generate additional cash flow and tax advantages which can help to offset interest rate rises. The bonus is that you will be creating wealth at the same time as paying off your home faster! That has to be good news!
Contact the Go Mortgage team on 1300 855 244 about how you can use these tips to prepare for future interest rate rises.
Get a review of your home loan while you’re at it. Just by looking around for a better offer, you could save on your repayments.
