Stay ahead of the rate game

We have covered the issue of interest rates fairly extensively in this blog.  The last time the RBA lifted the official cash rate was in November 2010 and since then it almost feels as though we have been playing a waiting game, anticipating the next rate rise. 

While relief for mortgage holders has come month after month as the RBA moved to keep rates on hold at least up to now, it must be said that nobody likes to sit on their hands doing nothing.  Although we enjoy the rate reprieve for the time being, it is a near certainty that rates will go up – the uncertainty is regarding when this will occur. 

Even if you are comfortably meeting the repayments of your current home loan, have you considered how much extra you will be required to pay each month should the Reserve Bank move to put rates up? The current market is experiencing a significant number of borrowers falling behind on their loan repayments, which is both a financially and emotionally stressful experience.  The most sensible borrowers should try their best to avoid this situation.    

So – what can you as a prudent mortgage holder do to prepare for a rate rise? A recent article in the Sydney Morning Herald’s Money section entitled ‘Four ways to beat any rate rises’ (25 May, 2011) provides, if you hadn’t already surmised from the title, four options for borrowers to consider to ready themselves for the impact that a rate rise will have on their budget and ability to meet their mortgage repayments. 

The article, written by Lesley Parker, suggests that now may be a good time for borrowers to switch to a fixed interest rate loan before both fixed and variable rates increase.  It also points out that now may be a good time to look around for alternative rates that are cheaper than what you are currently paying.  I must say though, if you do find a more attractive mortgage rate, be wary of the refinancing costs you will be required to pay, and make sure that the savings achieved outweigh the costs of transferring the loan to an alternative provider.

The next tip provided by the article is to speed up the timing of your mortgage repayments.  This doesn’t necessarily mean paying more; rather it could mean halving your monthly repayment and paying it fortnightly, as opposed to once monthly.  This method will see you make more repayments in a year, thus getting ahead on your mortgage and somewhat protecting yourself against rate gains. 

Another viable option, suggests the article, may be to consolidate your higher-interest debt (from credit cards for example) into your home loan on which you may likely be paying a lower rate.

Falling behind on your mortgage repayments can be stressful and there is a now a window of opportunity that allows you to protect yourself, and your mortgage, from this strain.  Take advantage of the options discussed and others available to you, and prepare yourself for the stress that may accompany the next interest rate rise. 

Posted by Charles Tarbey on 06/06/2011 at 9:37 AM | Categories:


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