Home loan interest rates are going up in Australia.
While rising interest rates are unavoidable for many home owners, you can take some simple steps to help cushion the blow.
While careful budgeting is key for many borrowers, NBS Home Loans gives some extra “No B.S.” Top Tips for combating the pain of interest rate rises in Australia.
Tip #1: Pay Extra On Your Home Loan Now If Possible
Tip 1 of 5 to Deal with Rising Interest Rates in Australia
Do you currently have a variable rate home loan?
The good news is that most variable-rate home loans allow you to make extra repayments, pay off your loan faster, and build up a financial buffer.
When rates started to increase several months ago, many borrowers flocked to fix their rates to guard against future rate rises. As a result, lenders quickly began to hike their fixed rates in anticipation of future rate rises.
While some lenders offered 4-year fixed rates below 2% p.a. on owner-occupied homes at the height of the Covid pandemic, today, the same term now starts from just over 5% p.a. This increase has made fixed rates less attractive to many borrowers who fear they have missed the boat.
As fixed rates are currently significantly higher than variable rates, it may be prudent to consider treating your variable rate loan as though it IS fixed at the higher rate and start making repayments at the higher rate as soon as possible.
If interest rates rise to the amount you are already paying, you should have built up a significant buffer and will be ahead on your loan repayments. If interest rates rise even further than anticipated, the increase won’t feel overwhelming.
It also helps if you can increase your loan repayment frequency if possible. For example, paying weekly or fortnightly instead of monthly will help you pay down your loan more quickly, saving you interest in the long run.
NBS Home Loans can help you calculate your repayments on a range of fixed terms so you can allocate these funds towards extra repayments.
We can also compare a range of scenarios to help you understand changes in your financial position when making extra vs making minimum repayments.
It’s important to note that fixed-rate loans usually restrict the number of extra repayments you can make without incurring penalty charges, so speak with us to find out if this course of action is suitable for your own individual circumstances.
Tip #2: Know What Happens When Your Fixed-Rate Period Ends
Tip 2 of 5 to Deal with Rising Interest Rates in Australia
When your loan is fixed, your home loan interest rate will not change during the fixed-rate period (usually 1 to 5 years, depending on what you have agreed with your bank) regardless of any economic changes or rate fluctuations.
However, it’s essential to be aware that your interest rate and repayment amount may increase sharply once your fixed-rate period ends in a rising rate market.
When your fixed-rate period is due to end, it’s important to discuss your options with us at least one to two months ahead.
If you do nothing on the expiry of your current term, your loan will typically revert to your lender’s standard variable rate, which may be very different from what you are currently paying.
In some cases, NBS Home Loans can negotiate a discount on the standard rate that can save you money.
You can also elect to fix your loan for a further period once it expires. Still, once again, it is important to note that rates have increased significantly over the past few years, and the rate for additional terms may be higher than you were previously paying.
Most lenders are currently unwilling to negotiate an additional discount on fixed rates.
Alternatively, it may be possible to refinance to a lender offering a better deal, depending on your circumstances.
NBS Home Loans can help you understand if this might be a suitable option for you and compare a range of loans from over 40 lenders to find the right fit.
Discussing your options in advance can help you make an informed decision about what course of action is right for you and gives you time to budget and plan for any unavoidable increases to your interest rate or repayments.
Tip #3: Make Sure You Have A Great Home Loan Deal
Tip 3 of 5 to Deal with Rising Interest Rates in Australia
If you haven’t reviewed your home loan for two or more years, there is a good chance you are leaving money on the table. This is especially the case if you have a variable rate packaged loan with one of the major lenders.
The smaller lenders often sit half a per cent to a full per cent lower than their Big 4 bank competitors.
NBS Home Loans can help you review your current loan to make sure it’s still the right fit for your needs, make sure you are using all the features of your loan to your advantage, and in some cases, we can even help renegotiate a better rate with your existing lender.
Depending on your circumstances, it may also be possible to refinance to a lender offering a better deal. We can help you understand if this might be a suitable option for you and compare a range of loans from over 40 lenders to find the right fit.
Many lenders offer incentives such as cash-back offers and lower introductory rates for new clients to win business.
NBS Home Loans can help you do the sums, weigh up these incentives against the cost of moving, and compare the features and benefits against your current loan to see if this will save you money in the long run.
It’s also helpful to utilise features such as an offset account if your loan comes with one, as any funds in the account will help reduce the overall amount of interest you pay.
So, whether you are refinancing or staying put with your current lender, we can help you understand the features of your loan and how you can use them to your advantage to save money.
Tip #4: Don’t Wait for the Bank to Adjust Your Mortgage Repayments
Tip 4 of 5 to Deal with Rising Interest Rates in Australia
If you’ve got a variable rate loan, it would be fair to assume your repayments will automatically be adjusted as soon as rates rise, right?
You might be surprised to learn this isn’t always the case.
In most cases, if you have your loan repayments directly debited by your lender, the lender will automatically adjust your repayment amount to cover the increased interest you will need to pay due to rates increasing.
But the speed at which lenders make these adjustments can vary.
Some lenders adjust your repayment amount within weeks of interest rate changes, while others may not increase your repayments until the anniversary of your loan. In theory, this could mean it’s close to a year before your repayments are increased in line with rate rises.
Increases in repayments can lead to a substantial financial shock when repayments rise dramatically, especially in the current market when rates are rising rapidly.
The good news is that most lenders allow you to manually adjust your repayments on variable rate loans at any time, usually via online banking.
In addition, your broker or lender can help you determine how much you should be paying to help combat rate rise shock and avoid a considerable repayment jump in future.
You may also wish to consider increasing your loan repayment frequency if possible.
For example, paying weekly or fortnightly instead of monthly will help you pay down your loan more quickly, saving you interest in the long run.
Tip #5: Building or Buying a Home? Don’t Be Caught Short!
Tip 5 of 5 to Deal with Rising Interest Rates in Australia
When rates go up, borrowing capacity goes down because the minimum repayments you need to make on your loan will increase with rising interest rates. Unfortunately, this increase usually outpaces any rise in salary or earnings.
You must revisit this if you have already checked your borrowing capacity or obtained a pre-approval with your broker or lender.
Due to the recent series of rising interest rates (with more anticipated), your initial maximum budget may now be less than what you have been initially quoted.
Therefore, it’s essential to chat with NBS Home Loans to recalculate your budget and plan ahead for any changes.
If you have already purchased land and plan to build a home, you should speak with us urgently.
This is particularly the case if you intend to borrow towards the top of your budget as your maximum construction budget is likely to be negatively affected by rate rises.
Rising construction costs further compound this, so discussing your options early in this situation is vital to avoid any nasty surprises at the last minute.
NBS Home Loans has written a helpful article for Australians on UNDERSTANDING INTEREST RATES, expanding further on our information here: https://www.nbshomeloans.com.au/understanding-interest-rates-in-australia-in-2022/
If you are a first home buyer, this Article we have written may also be interesting.
Find Our What’s Right For You and Your Home Loan
It’s vital to review your loan to ensure it’s still a good fit, so chat to your broker sooner rather than later to see if there are better deals where you may be missing out.
With hundreds of loans from over 40 lenders and over 20 years of experience, NBS Home Loans take the hard work out of comparing loans to make sure you aren’t leaving any money on the table by missing out on other options.
Contact us today on 0434 103 326 to discuss your options for your personal situation.
For an up-to-date overview of the current rates on offer, visit our Facebook page at facebook.com/NBSHomeLoans