The recent rate hikes by the Reserve Bank of Australia (RBA) have understandably put borrowers under pressure. The fact that the RBA has implemented a handful of consecutive holds is little consolation for those struggling with higher borrowing costs.
However, taking a proactive approach can help you mitigate the impact of rising interest rates and put you back in control of your financial situation. Here are some strategies you can consider:
Review your budget
Start by conducting a detailed review of your budget. Analyse your income, expenses, and debts to identify areas where adjustments can be made to allow for higher repayments. Look for opportunities to cut back on discretionary spending or make lifestyle adjustments that will free up additional funds to help with your mortgage repayments.
Negotiate with your lender
Reach out to your lender to discuss securing a lower interest rate. If you are transitioning from a fixed-rate period, you may be facing a variable interest rate that's higher than what your lender offers to new borrowers. This is where a mortgage broker can help negotiate a different rate with your current lender, if possible.
Refinance to a lower interest rate
If your current lender is unwilling to provide a competitive interest rate, refinancing with a different lender might be an option. Mortgage brokers can help compare rates and loan terms which could give borrowers some additional room to breathe. Refinancing can not only lead to better interest rates but may also allow you to consolidate debts or access equity in your home at the same time.
Make extra repayments
Making additional repayments on your mortgage can significantly help you in the long run – if you have the scope and spare income. By reducing your principal, you'll lower the amount of interest charged on your home loan. By paying off your loan faster you will be less susceptible to future rate hikes.
Extend the loan term
While it may not be the preferred option for everyone, extending the loan term can reduce your monthly payments. However, it's important to understand that this also means paying more interest over the lifespan of your loan. This can be a good short-term solution.
Seek out better features
Consider features that can reduce the amount of interest you pay on your home loan like an offset account or redraw facility. These features enable you to use surplus funds or savings to offset your mortgage balance.
Fix your home loan
Fixing your home loan can be a strategic move to manage rising interest rates. By locking in a fixed rate, you shield yourself from the risk of further rate hikes, providing stability and potentially saving money on your mortgage repayments.