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How to survive an interest rate increase

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Like death and taxes in life, interest rate movements are unavoidable when it comes to variable mortgages. Some – namely decreases – mark a welcome shift for household budgets while others – the dreaded increase – can hurt your back pocket and cause undue stress on the family finances.

But whether it ebbs or flows, we’re here to help ensure that your finances and your family life remain stable regardless of shifts in the market.

When faced with an interest rate increase, there are several options you can consider to ward off the consequences of these hikes.

Get fixing

When paying off a home loan, it’s important to keep an eye on interest rate predictions and expert commentary to get a sense of how lenders will move with the market. Sometimes, interest rate changes are completely unpredictable but other times, there are markers that will warn you of impending movements – industry forecasts and news around the nation’s economic performance are two very useful tools for this.

If there is a threat of multiple rate increases, it may be in your best interest to consider fixing your mortgage for a period of time. Commonly, you may be able to fix your home loan rate for a period of between one to five years.

The downside of fixing your home loan is the lack of flexibility. You’ll be locked into the rate for the agreed term, meaning that you won’t be able to take advantage of interest rate decreases and if you do want to end the contract before the end of your fixed term, there are considerable break fees and costs involved.

Split your home loan

If you’re concerned about the lack of flexibility that comes with a fixed rate product, consider selecting a loan that offers customisable features such as a split loan facility.

This allows you to fix part of your home loan while keeping a proportion on a variable rate.

Boost your offset

Another way to prepare for the effects of an interest rate increase is to boost your offset account.

By adding any surplus funds or savings into your offset account, you can significantly decrease the amount of interest you pay over the life of your home loan.

If you have the luxury of fully offsetting your home loan, aim to reach that goal or get as close to it as possible so that you avoid interest payments altogether.

Additionally, you can easily access funds in your offset account at any time.

Select a home loan that allows for penalty-free additional repayments

By selecting a home loan that allows you to pay additional lump-sums without penalty, you can get ahead of any future rate increases.

Think of these additional repayments as your “rainy day” fund. They benefit you in the short term as you can reduce interest on your loan, and in the long-term you can redraw on these funds – should you need fast access to extra cash.

Just be sure to select a product that has flexible redraws.

Talk to your lender’s hardships department

At the end of the day, if all else fails and you can’t see anyway around the rate increases without putting significant stress on your family budget, and ultimately wellbeing, speak to your lender about restructuring your loan. They can help you identify options that will make your repayments more manageable, all the while remaining on top of your credit and without hurting your borrowing history.

At Gateway, our mission is to help make our Members’ lives as simple and stress free as possible as they work towards their financial goals and dreams. Our team is committed to working with each Member to ensure that they stay on top and in control of their finances.

If you ever find yourself struggling with your repayments, we can work with you to get you back on the right track, just reach out to one of our lending consultants, who are on call and always happy to help!

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