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Minimise the impact of interest rate increase

How to prepare for interest rate increase

Minimise the impact of interest rate increase

How to prepare for interest rate increase

Image courtesy of cdkstone.

Interest rates will affect your borrowing, especially now that the Reserve Bank of Australia has officially increased the cash rate to 0.35%, the first time in 11 years. This was caused by the recent increase in inflation, well above the RBA’s target rate of 2-3%.

So here is what you can do now to protect yourself and in turn, save money as interest rates continue to rise:

LOCK IN A FIXED RATED

Fixed interest rates have been increasing significantly, and the current fixed rate you will be offered will be substantially higher than your current variable rate. But keep in mind you might be saving money in the long term, as there will continue to be a number of fixed interest rate rises over the course of the year.

And don’t forget, variable rate mortgages follow the trends of the Reserve Bank, so they might be incredibly low, but will go up as soon as the cash rate hike occurs.

IF POSSIBLE, OVERPAY ON REPAYMENTS

In a low or neutral interest rate environment, it is advisable to overpay your mortgage by as much as you can afford through a mortgage offset account that runs alongside your home loan.

The main reason for this is that you can save thousands of dollars on interest and the amount of time your mortgage will last can be dramatically reduced.

CONSIDER SWITCHING LENDERS

There is a potential for more than 10 rate cuts on what you are paying right now. Your repayments could drop by a few hundred dollars a month simply by refinancing your loan to another mortgage lender, major and non-major.

If you wish to change lenders, some are offering super-charged interest rate opportunities and cashback offers of up to $6,000.

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