How to prepare for rising interest rates
With mortgage starting to rise and further increases expected, many homeowners are left wondering where they will end up and how they will afford the increased interest payments. Sadly without a crystal ball, it’s really anyone’s guess. However, with the Reserve Bank raising the OCR to 0.75% and indicating that there is much more to come, it’s expected the financing costs will increase noticeably.
We all knew that low rates couldn’t last forever. So what can current homeowners do to prepare for the rise in interest rates? Here’s a few tips.
WORK OUT YOUR POSSIBLE REPAYMENTS
It’s a good idea to do a few calculations to find out how much your mortgage payments might rise to if the interest rates go up a few percent. This gives you time to prepare for how much extra you might need to find per week to meet the repayments, rather than just waiting for the time to come. While it’s hard to guess how much rates might rise by, working payments out on a rate of 5-6% is a good start.
DECREASE YOUR UNNECESSARY SPENDING
Now’s a good time to take a look at your spending and try to decrease anything that’s not needed. This gives you a buffer when the higher repayments kick in, and also gives you extra money in the meantime which can always be used towards reducing your loan.
REFIX YOUR LOAN
Depending on your circumstances, refixing your loan could save you money in the long run. There are a number of factors that contribute to whether we recommend breaking and refixing including the length of the fixed rate, break fees, and your personal circumstances.
While there’s no doubt rates will continue to rise, it’s likely they won’t be jumping up too much too quickly, so it gives borrowers time to make a plan. If you need personal advice or are unsure how the rates rise might affect you, then give us a call and let’s chat.