If you’ve watched the news, read the day’s headlines or checked social media lately, you’ll know there’s a lot of panic out there about rising interest rates.
In between the media noise, you might be left wondering what you can do to combat all the doom and gloom. Here’s the good news: you can take a few practical steps today to improve your position as interest rates climb.
A good place to start is to ask yourself a few questions about your existing loan:
- Am I paying unreasonably high interest rates or fees?
- Is my loan missing some features I need, and am I paying for features I don’t use?
- Could the service offered by my current lender be better?
- Has my financial situation changed since securing the loan?
If you answered yes to any of those questions, here’s five tips for giving yourself a leg-up.
1. Review your loan product annually
While it might be tempting to ‘set and forget’ your loan, it’s well worth making the time to reconsider your options. Set a reminder to review your loan and loan product annually, so the product still meets your needs, financial goals and objectives. You can do this yourself or with the help of a mortgage broker.
One way a broker can help is finding a loan that works for you long-term, not just today. For example, if you secured a loan for an investment property, with a view to develop that property in five years time, you might choose a lender that offers a lower interest rate, even if that lender is not the right fit for a construction loan. By consulting a broker upfront and sharing your long-term goals, you might find that going with a different lender with a slightly higher interest rate will pay off down the track, as they are well equipped for construction loans.
Every decision you make shouldn’t be driven purely by the rate at that moment – it’s about what you ultimately want to achieve.
2. Call your lender to negotiate your rate
Most homeowners are familiar with the term ‘refinancing’ – essentially, reviewing your current mortgage and loan structure to assess if it still meets your needs, and if not, considering which lender can do better. Refinancing can help you to consolidate debts, secure a lower interest rate, pay down your mortgage and access equity for future property investments.
Before choosing to refinance, call your lender and ask if they can reduce your rate or offer a discount. This straightforward phone call to negotiate a better rate could make a big difference.
For example, if your loan-to-deposit ratio (LDR) is over 80% and your property hasn’t had time to significantly increase in value, your smartest option is to negotiate a rate with the lender to avoid paying Lenders Mortgage Insurance (LMI).
In short, call your lender and see what they can do to keep you.
3. Compare lender rates to find what’s right for you
If you don’t have the time to shop around and compare lenders, working with a broker is the way to go.
Top brokers are accredited with dozens of lenders, which gives them immediate access to a wide range of rates and products for comparison. You’ll find banks offering anywhere between $2000-$4000 as a refinance rebate with a competitive variable interest rate.
By setting clear goals and communicating them to your broker, they can help you find exactly the right loan structure for now and into the future.
4. Assess your budget and monthly living expenses
Going through your monthly spending with a fine-tooth comb might seem tedious, but it could make a world of difference. Every expense, even if it seems small on its own, adds up.
Check your subscriptions and ask what you really need to keep, or cancel a credit card or car loan that’s no longer delivering value. Cutting down on living expenses and consolidating your debts can dramatically improve your financial position, so you’re in a strong place to withstand interest rate rises.
5. Change your loan repayment schedule
If you’re paying down your loan on a monthly schedule, try switching to fortnightly loan repayments. This helps you pay more principal off your loan, which improves your position overall. Linking an offset account and/or redraw facility to your home loan also reduces the amount of interest you’re accruing on your mortgage.
If you can afford it, make extra repayments on top of your existing repayments, as interest is calculated on the balance of the loan. These additional repayments will reduce your loan term and set you up for your next move, whether that’s a bigger home, an investment property or building your dream house.
Stay tuned for more tips and tricks to help you navigate the ever-changing economic environment and property market.
Contact mortgage broker in Melbourne
Broker One Finance is a mortgage broker in Melbourne specialising in home loans, investment property loans and refinancing. Contact us today for an assessment call.
