How much would a rate rise cost you?
Prepare your finances for possible future rate hikes.
First home owners currently enjoy historically low home loan interest rates. But there’s no room for complacency. Now is the time to shore up your finances so that if, and when, rates climb higher, you’re well placed to handle higher repayments.
Know where you stand
Knowledge is power, and it’s important to have a clear idea of how your finances could be impacted by a rate hike. Start by reviewing your latest home loan statement or speak to your local Aussie broker, to confirm the balance of your loan and the rate you’re currently paying.
Next, use Aussie’s online Repayment Calculator to see how your monthly repayments would change if rates rose by 0.25%, 0.5% or even 1%. If it looks as though higher rates could squeeze your budget, follow some, or all, of the steps below to prepare for possible rate hikes.
Get more bang for your buck today
If you’re only making minimum payments on your home loan, start paying a bit more. Not only will this cut dollars off your loan, it will also boost the equity you have in your property, and that can be a big plus if you need low cost funds for, say, home improvements, further down the track.
Be smart with spare cash
Holding spare cash in a savings account that pays interest of around 3% doesn’t make good financial sense when your home loan rate is around 5%-6%.
A smarter strategy can be to park savings in your home loan. You’ll save more on interest than you would earn on a separate savings account, and thanks to loan features like redraw, your money is available if you need it. In the meantime, your funds are helping to reduce the balance of your home loan and this means further savings on interest costs.
Slash high rate debt
Home loan rates may be low but the same can’t always be said of credit card debt or personal loans. Taking steps to reduce high interest debts today will leave you better placed to manage higher home loan repayments if and when rates rise.
Think about fast-tracking future plans
If rates start heading north you’ll be able to afford less home for your money, and if you’re considering an upgrade within the next year or so, it may pay to bring those plans forward. As an added incentive, the property market in many areas has experienced significant price growth over the last 12 months, and your current home could be worth more than you realise. It can mean more equity to fund your next place.