Interest Rates Rise Action Plan

Interest Rate Rise Action Plan - What Should I Do?

Interest rates have been on the rise for so long now that it's hard to remember when they weren't going up.  Each time the rate shifts up .25%, this adds about $18 dollars a month to loan repayments for every $100,000 in outstanding borrowings on your mortgage. While it is nice to know these numbers, find out the facts here and what you can realistically do to bring your mortgage under control.

Standard  Variable Interest Rates are now Different

Since January 2008, the five major banks increased their standard variable rate over and above the Reserve Bank shifts.  And they have done so by different amounts.  As a guide, standard variable rates are now: 

• AMP Banking 9.37%
• ANZ  9.37% 
• CBA 9.44%
• Homeside (NAB) 9.39%
• NAB 9.36%
• St George 9.47% 
• Suncorp 9.37%
• Westpac 9.37%

(For individual comparison rates, you will need to either talk to a mortgage broker or check with the relevant lender).

First - Check your Budgeting

Before tallking to anyone, first get a clear understanding of your finance position.  Check your finances and evaluate your budget.  For most Australians, we are talking about $30 to $50 per month. Are you able to accomodate the interest rate rise by curtailing extra spending by doing simple things like buying one less drink on a Friday night or giving up smoking or eating muffins?  Use the handy X Inc budgetting calculator to help you.

Once you understand your position fully, contact a mortgage broker and evaluate your borrowings properly.  There are many many options available to you including cash flow management loans, interest only loans, fixed interest loans and much more.  

How Can I Get a Better Rate or deal? Investigate Your options

Don't panic about interest rate rises. There are as many many ways to reduce your repayments or overall mortgage.  If you want to do some research of your own, there is extensive information on this site. Some great options and a good place to start is 12 tips that really work to pay off a loan faster or go to Save over $126,000 interest on a $300,000 home loan.  You could well be paying higher interest rates than you need to. Before simply accepting a higher interest rate, talk to your lender or get a confidential assessment of your situation from a mortgage broker. Their service is free and they can assess your loans against their major banks and lenders and tell you how it stacks up. 

Interest Rates may be Negotiable

There is no such thing as a 'standard' interest rate. Different lenders offer different rates, dependent upon how much you have borrowed, how much deposit you paid and what your loan is for. Many people don't negotiate their interest rate because they either aren't aware that they can or don't know how to. If you can, always talk to a mortgage broker when you are buying a property or refinancing.

More Information or assistance

Good mortgage brokers know the range of loan products, structures and fees in the market and can help you decide which one is right for you. Send us the form below or call at any time on 13 XINC (International direct line: +61 2 9018 8417) and we will have a broker in contact with you within 2 business hours.  

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Consolidate your Debts NOW to bring down your repayments!

Whether you get a better rate on your mortgage or not, one other immediate consideration to bring down your monthly payments is to consolidate your debt. If you have several different loans or credit cards, all are debts. Getting them are under control and keeping them that way by using a disciplined payment strategy is what you should be targeting. Usually these debts can be consolidated against your mortgage and you will probably be surprised at just how much you will save. BUT mortgage secured debt does mean you could lose your home if you don't make your repayments, so make sure you are fully aware of the impliations of debt consolidation and the need to manage it before you go ahead. 

In addition, mortgage consolidation increases the time factor in paying off smaller debts. For example, if you had a $5,000 personal loan, consolidating this to the home will put it on a 30 year term. A mortgage broker can help you work out what you need to repay so that, for example, a 5 year car loan doesn't become a 30 year car loan.

When you talk to your lender or mortgage broker, make sure you get them to analyse your entire debt situation when considering your next move.  For more information on debt consolidation, read our reports for the pros and cons.

Should I Refinance?

Refinancing can be expensive so do the math with your mortgage broker first. One of the worst things that borrowers can do in this current climate is to be overly influenced by the commentary in media.  Basic maths is still the best guide as to whether a move to another lender is worth the expense.

Example: You have a $300,000 self-employed pro-pack loan with a second tier lender at 8.72% interest.  You know that one of the major banks offers the same low-doc loan at 8.27% interest. The actual rate differential is approximately $1,350 per annum. In year one, the current lender will charge an exit fee of $6,600. In years 2 and 3, the exit fee is $4,500 and years 4 and 5, the exit fee is $3,600. The cost of exit versus what you would save by changing clearly shows that the move is simply not worth it. 

Assess your situation confidentially with a professional

Assessing your options thoroughly with someone who understands the refinancing market as well as the pros and cons of consolidation, like a mortgage broker is important. Banks and lenders are competing fiercely for the refinancing market and with so many different options available from so many different lenders, finding the right products for your unique situation is best assessed by a professional with access to many different types of loans. A good mortgage broker will also have loans assessment software and they will be able to use this technology to do the sums for you, so talk to a local mortgage broker.