Top Tips to Cope with Rising Interest Rates

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Top Tips to Cope with Rising Interest Rates

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Australia’s largest independently-owned mortgage broker, Mortgage Choice urges borrowers to prepare now to cope with inevitable interest rate rises. With much talk around further rises occurring as early as next month, every Australian with a variable rate home loan should reassess their budget as soon as possible.

The Reserve Bank of Australia’s first official rate increase in 19 months is a welcome sign of our economy’s health. However, now that lenders have followed suit and increased their mortgage interest rates, it will undoubtedly be a burden on many Australian borrowers, as will future increases.

Mortgage Choice senior corporate affairs manager, Kristy Sheppard said, “It is always a clever strategy to repay your mortgage as if the interest rate was at least one to two percent higher. This prepares you for rate rises if they do happen and in the meantime helps you build a financial buffer, saving you total interest owed and time off your loan term.”

“Borrowers should take ownership over their mortgage situation and also watch for indications of when their lender will increase its mortgage rates. A good way to monitor this is to read the finance section of newspapers, peruse online mortgage industry news, listen to and watch broadcast news breaks and take note of articles or online blogs featuring economists and market commentators.

“If you’re unsure about your ability to repay your loan at a higher rate, revisit your budget now to see if there is a way to make further savings. Perhaps you can start making meals more often, cutting back on taking taxis, or limiting the purchase of treats like magazines, chips and soft drinks.

“Then, if needed, consider other options to help you manage your financial commitment such as reconsidering your loan term, making lump sum contributions or refinancing to different loan option.”

Mortgage Choice suggests the following top tips to help borrowers battle rising interest rates:

Give yourself a home loan health check. Consult a reputable mortgage broker to compare your loan options and help you determine if a different loan is more suitable, or ‘cheaper’. It may be that another loan offers you a lower interest rate and/or fees. However, a more affordable loan may have fewer features, so carefully weigh up the emotional and financial pros and cons of all options.

Reduce the loan amount in one quick move. For example, making a lump sum payment now can knock time off your loan term and reduce your overall interest payments.

Recalculate to lower your repayments. If additional money is sitting in your loan account, consider having your lender recalculate your ‘true’ loan amount using the extra funds, which changes the it to reflect what you actually owe. This, in turn, decreases your repayment level. Of course, it also means this money is no longer available to redraw.

A fixed rate may help. If peace of mind over your repayment level is paramount, consider fixing all or part of your loan. However, keep in mind many lenders have already increased their fixed interest rates to levels that are significantly higher than most variable rates, and with the fixed element often comes fewer loan features.

Reorganise your repayment strategy. If you are juggling the repayments of multiple loans or credit debt, consider rolling them all into one. Stretching these repayments over the life of your mortgage will reduce your overall monthly repayments but will see you paying more interest over the long run because you’ve lengthened each debt’s loan term. So, this strategy alone will not help you reduce your debt faster but it may help you cope better.

Extend your loan term. Although not an ideal option, extending your home loan term will stretch the loan amount owed over a longer period of time, thereby reducing the amount of your regular repayments. However, you need to remember that for every extra month you have a home loan, that loan will attract interest.

Call the customer service centre on 13 MORTGAGE, visit www.mortgagechoice.com.au or www.facebook.com/MortgageChoice or http://twitter.com/MortgageChoice.

For further information or to arrange an interview, please contact:

Kristy Sheppard

Mortgage Choice

(02) 8907 0502 / 0407 450 860

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About Mortgage Choice

Mortgage Choice, Australia’s largest independently-owned mortgage broker, has a national network of hundreds of franchises and loan consultants supported by Group and State Offices. It provides loan advice on, and choice of, products offered by an extensive panel of Australia’s leading lending institutions.

A number of the company’s consultants provide a broader service offering, also helping customers source personal and commercial loans, asset finance and risk insurance.

Importantly, Mortgage Choice head office pays franchisees the same commission rate for home loans they write, regardless of the rate paid by the lender selected by a new customer - and has been doing so for most of its 17-year history. The company has no products of its own and works in each customer’s interests to source a loan that suits their individual needs.

Mortgage Choice has no balance sheet or funding risk, and consistently delivers strong profits and attractive yields. The company listed on the Australian Stock Exchange in August 2004 (ASX sign: MOC) and is a member of the Mortgage & Finance Association of Australia (MFAA).

Recent awards/recognition: 2009, 2008, 2006 and 2005 MFAA Awards Retail Aggregator/Originator of the Year; 2009 and 2008 BRW Fast Franchises list; No.1 spot on Top 25 Brokerages list by Mortgage Business magazine; 2009 Australian Banking & Finance Awards Best Financial Institution Employer; 2009 Great Place to Work® Institute Best Companies to Work For list; 2009 and 2008 10 Thousand Feet Top 10 Franchise list; 2008 MFAA Awards Best In Mortgage & Finance Industry.