Many home loan borrowers face higher costs following the latest interest rate rise.
Be prepared with our easy 10 Step Guide to staying ahead of rising rates.
1. Budget now for higher rates
The best time to plan for a change in your financial circumstances is before it happens. Draw up a detailed budget then factor in rates 2 per cent above current levels. Adjust your spending and be sure to put any savings aside for a rainy day.
2. Borrow less
Before you buy, calculate what you can afford taking into account future rate rises (see above). Save the biggest deposit you can and put any unexpected payments such as dividends or tax returns directly into your home loan account. Remember, every dollar you borrow attracts interest (and stamp duty fees) so the more you save the better prepared you are when rates rise.
3. Switch to no-frills
In some circumstances, moving from a standard to a basic or no-frills home loan can cut your interest rate by around 0.4 per cent. Keep in mind, however, that a no-frills loan may not offer the flexibility to achieve other savings like extra repayments.
4. Skip the honeymoon
Beware the hidden costs of honeymoon loans. Many honeymoon loans have stiff exit fees if you want to refinance in the first few years of the loan. The lender's standard variable rate may also be higher than other lenders, meaning you pay more in the long run.
5. Pay extra from the start
Paying just $50 above the minimum repayment on a $100,000 variable rate loan can cut years off the loan term and save you thousands in interest costs. Paying more from the start is also easier than adjusting your budget when rates rise. The extra money goes directly to paying off the principal, which means you're also building equity.
6. Pay loan fees and charges up-front
Pay cash for upfront charges such as the loan establishment fee, legal costs and valuation fee to reduce the total loan amount. When saving for your deposit, set up a separate account specifically to cover up-front purchase costs.
7. Lock it in
While the best time to fix your home loan interest rate has passed for now, it is still possible to lock in all or part of your loan for a competitive rate. Fixed rate loans also offer greater certainty over repayments and minimise the risk of further rate rises ahead.
8. Consolidate your debt
Now that official rates have gone up, you can be sure variable interest rates for most forms of credit will rise accordingly. Consider consolidating your debts under the one umbrella - your housing loan. So instead of paying 15 per cent interest on your credit card or car loan, you'll pay at the much lower home loan rate.
9. Move to fortnightly repayments
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.
10. Take advantage of redraw
Redraw is a popular loan feature allowing borrowers to pay extra on their loan and "redraw" it when needed. While rates are low, put any spare salary and extra cash directly into your loan account. This helps build a buffer, allowing you to redraw the money if times get tough.
Please contact the lending professionals at APO Finance to discuss all your loan requirements.
Call 07 3387 2200 or
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