Since May this year, Australian homeowners and investors have seen back to back rate rises of 50bps creating significant concern around how they will maintain their mortgages. While interest rates have averaged 3.88% over the last twenty years, Australians have enjoyed historical low interest rates over recent years which has derailed expectations – however, there are many ways homeowners and investors alike can keep their finances in order. Here are our top tips to managing rising interest rates with minimal impact to your lifestyle:
1. Review Your Budget:
A budget review can help you identify areas where you can save money or reduce expenses in the future.
- Check your bills, such as electricity, car insurance, and internet, to see if any better deals are available
- Consider cancelling any unused subscriptions or memberships, for eg. gym memberships or streaming services
- Consider ways to reduce the amount of money you’re spending on food bills, for eg. eating out less, minimising online food ordering, shopping with ‘value for money’ retailers
- Engage an expert such as a Money Coach to assist you in reviewing your budget, identify key areas where you can reduce spend and keeping you accountable
2. Make Your Mortgage Repayments More Frequently:
Increasing the frequency of your mortgage repayments is an effective way to pay off your mortgage faster.
By switching from monthly to fortnightly repayments, you can reduce interest charges and speed up the repayment process.
Since there are 26 fortnights in a year, but only 12 calendar months, making fortnightly payments would require two additional payments each year.
For example, if you are making fortnightly payments of $1,000 then you would be spending $26,000 per year, as opposed to $24,000 if the repayments were monthly.
3. Renegotiate or Fix Your Rate:
Check to see if you’re getting the best deal at the lowest rate. Market rates have risen more than two percentage points since January, varying widely over the past year and are speculated to increase. Whenever you’re close to a home purchase or refinance, be sure to conduct your own research leveraging tools such as Canstar, Lendi and Aussie to help you identify the best interest rate deals for you and engage a Mortgage Broker to assist. For prospective investors, AllianceCorp has partnered with a panel of expert financiers with broad experience in lending for all property types (established, off the plan, house and land etc.) creating peace of mind knowing they are getting the best rate possible.
4. Leverage an Offset Account:
Offset accounts are savings accounts tied to your main home loan account. When you put money into your offset account, it is deducted from your home loan, so you will only be charged interest on the difference.
For example, let’s say you take out a $500,000 home loan. You then deposit $10,000 into your offset account. You’ll now be charged interest on $490,000, instead of the full $500,000.
As a result, you will be charged less interest on your remaining home loan when you have more savings in your offset account.
Depending on your lender, you can choose a variable or fixed rate offset account, although some lenders have specific terms.
For more information on how to manage your finances and build a successful property portfolio amidst rising interest rates, simply fill out the form below!