A home loan rate increase of even 2% can wreak havoc on many Australian households. However, there are ways that you can create a buffer against a potential mortgage rate increase. Here are three ways to better prepare your finances.
Is your current mortgage suitable for your finances?
Checking if you are able to afford your mortgage before signing for it is essential. This also means thinking of how the loan terms will affect your repayments in the long run. In general, you should ask yourself if you will still be able to afford your loan if it were to increase by 2% to avoid biting off more than you can chew.
However, if you already have a mortgage it is important to review it constantly to see if you are still getting the best rate. If not, you could consider refinancing your loan. Make sure to check if you will be getting a better interest rate and if the loan won’t come with fees and charges that could make you worse off than before.
Not everyone will be able to afford to refinance their mortgage, which means looking for alternative ways to handle the costs. Checking your budget and where you can potentially cut back can be one way. You could also consider using an offset account feature to help reduce the way that you pay off your loan.
Seek and you shall find
Some Australian home loan holders get hot around the collar when it comes to asking for a lower rate, but this could be a lifeline to managing your mortgage. According to News.com.au, 41% of Australians negotiate their mortgage rate, but this means 59% of home loan lenders don’t. This could result in them missing out on saving thousands of dollars off their mortgage.
Before you ask it is good to research what other lenders are offering. A comparison website can help you get quick access to hundreds of loans with their various rates. You could also approach a broker who will be able to quote you rates that are suitable for your finances at no additional cost.
Make extra repayments
You may have a mortgage where the interest rate has not yet increased which means you have ample wiggle room to lower the amount that you currently owe. Whenever possible try to make more than the minimum payment and try to make them as frequently as your finances allow you to.
You can consider opening a savings account to put aside money that will be used to reduce your mortgage. Always remember to budget. Having a budget not only shows you areas where money is being wasted, but it can also show you areas in which you can cut back to save.
If you are struggling to make repayments it is vital to speak to your lender as soon as possible as this will give them ample time to give you options that are suitable for your situation.