The RBA raised the official cash rate for a ninth consecutive time earlier this month, and unfortunately, word on the street is that rates will continue to rise.
So, if you’re a homeowner with a mortgage, or an investor with a few, what can you do to combat rising interest rates? To help answer that question, I called my mentor and veteran mortgage broker, Leanne Pon from Savvy Home Loans. With insider knowledge of what’s happening in the industry today, plus over 25 years experience in seeing clients through various economic climates, here is what Leanne suggests you do to ease the stress of rising interest rates and loan repayments.
Here are 5 ways you can combat interest rates hikes:
1. Review and Reprice
“The first thing you can do is ask for a cheaper rate on your mortgage,” says Leanne. “It’s known as repricing”. She recommends contacting your broker or bank directly to negotiate a better deal as a first step.
Have a look at what rates other lenders are offering in the market for similar products and loan amounts to your own (or ask your mortgage broker for help with this). Then go to your current lender and ask them to reprice your loan to match the rate you’ve found.
Quick heaps up!
Lenders won't always match the offer you present them with, as the interest rates their competitors are offering are for ‘new-to-bank customers’. As an existing customer, how much they can reduce your rate by is subject to how much it cost them to fund your loan in the first place (which is often a different cost to what they're paying for new funding now). So while they may not match exactly a competitor's offer, any discount they approve is a win. Getting some discount is better than no discount at all.
2. Consider switching products Leanne advises if repricing your loan isn’t as favourable as you’d hoped, “you can also look within your existing bank for a product switch.”
If your loan is currently under a professional package (where you pay an annual fee, have a linked credit card, and offset accounts), Leanne says, “you could take yourself back to a basic loan for now, that has redraw but no offset account. Where you’re still able to get that net benefit with a cheaper interest rate and basic, no frills kind of loan. So look within your existing lenders product suite and see if there’s an option there that can work for you.”
3. Think about fixing If you’re seeking certainty around your repayments, another option Leanne says you can consider is fixed rate home loan products with your current lender. “At the moment the fixed rates… The one year fixed rates could be on-par right now with the next two to three rate rises that are going up. So if you’re considering switching to a fixed rate now, consider the one or two year fixed rate. That will help give some security for the near future.”
4. Look at refinancing (BUT check the pros and cons first!) If your bank doesn’t want to come to the party with repricing or switching products, you can look at refinancing your loan to another lender.
Before you go ahead with any refinance application though, Leanne advises you run the numbers. Be clear on all the costs involved (including discharge and new set up fees), and ensure that refinancing is really going to be beneficial for you.
She says, “don’t be distracted by the $2,000 or $4,000 cash back offers, that’s short term thinking. When you refinance, you restart your amortisation clock. So you want to make sure the cost of refinancing and restarting your amortisation clock doesn’t take you backwards before you go forwards.”
If you are thinking of stretching your loan term out to make repayments cheaper now, Leanne says that’s doable, “but ultimately that’s not advisable as you’ll end up paying more interest in the long run.” She asks,
“what are your current needs and overall strategy? These things need to be considered when looking at refinancing.”
Her key piece of advice regarding refinancing is to, “find someone who can help you compare all of your options and run the numbers. Make sure refinancing is definitely in your best interests, and your best option.”
5. Rework your budget
Her last recommendation is to look over your budget and go back to basics.
“See where you can save a little more. Cut back on unnecessary spending and go back to basics. It’s tough, but if you can bear down and cut back with reviewing your budget, every little bit helps.”
Everyone’s financial situation is personal and unique, and hopefully these 5 tips from Leanne can help you combat rising interest rate pressures. If you’re looking for more assistance though, feel free to email email@example.com with the subject line “connect me”. I’d be happy to put you in touch with Leanne and her team directly. You can also find Leanne online here.
Until next time,
PS - just in case you need this reminder today… remember, you can handle anything that comes your way x
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