Seven Steps to Surviving in a Volatile Interest Rate Climate

The Reserve Bank of Australia’s decision to lift the official cash rate for the first time since November 2006, we think, is a move that signals a need for Australian borrowers to rethink their mortgage habits.

The reasons behind the Reserve Bank of Australia’s (RBA) decision to increase the rate to 6.50 percent include rising inflation, a strong employment market and an economy showing further signs of growth.

This month’s widely predicted rise should be the jump start many need to seriously reconsider their current mortgage situation, which should be done every 12 - 18 months.

An increase of 0.25 percent will make a difference to repayments on the average property loan, though only modest. On a loan of $250,000 over 30 years at the average standard variable rate of 8.07 percent, a move to an 8.32 percent interest rate, or $1,890.41 per month, will mean an additional $43.79 per month.

Below are our tips for people with mortgages who are wondering how to handle the new rate rise:

1. Debt consolidation
Think about rolling all personal loans and other debts into your mortgage. This means you will be repaying them at a lower interest rate, though over a longer term. Just make sure you are sensible with your credit cards and loans after consolidating!

2. Fix some or all of your loan’s rate
Fixing the interest rate on some or all of your loan will give you surety over repayment amount for the length of the fixed term. This can be a good option for those managing a strict budget, but ensure you calculate the costs associated with doing this plus the higher interest rate you will probably pay at a fixed rate.

3. Reassess – is it time to refinance?
Your loan may offer features such as redraw that you don’t use. A loan with more flexibility, i.e. more features, is often more ‘expensive’. Consider changing to a basic product with no - or less - extras as it may have a cheaper interest rate. For example, on a loan of $250,000 over 30 years, the change from 8.32 percent ($1,890.41 per month - standard variable) to 7.85 percent ($1,808.40 - basic variable) is a saving of approximately $82.01 per month.

4. Make a lump sum payment and watch your loan shrink
Any spare money you can add to your loan, such as a tax return, bonus or inheritance, can often make a significant difference to the overall loan term and/or the repayment amount.

5. Refinance extra out of your loan to reduce it
Made extra repayments? You can refinance so your repayments reflect what you owe currently, not what you originally owed. For example, assume a standard variable loan (8.32 percent) has 20 years remaining and is scheduled to be at $230,000 ($1,969.81 per month). However, extra repayments have reduced the balance to $180,000, so refinancing the loan over the same 20-year period at $200,000 ($1,712.87 per month) will reduce your minimum repayments by approximately $256.94 per month.

6. Lengthen your loan term
Depending on your property investment and mortgage strategies, you may want to consider increasing your loan term to 30 or 40 years. Yes, you will be paying it off over an increased amount of time but your repayment amount will decrease. Say a $250,000 loan at the standard variable rate of 8.32% has a loan term of 25 years ($1,982.76 per month) that is extended to a 30-year term ($1,890.41 per month) – the repayments will decrease by $92.35 per month.

7. Most importantly, always factor in future rate rises
Any savvy borrower is already repaying a greater amount than their minimum mortgage repayment, a rate at least 0.25 percent higher than is required. This ensures a rate rise can be easily managed, and if rates don’t rise – or fall – you are ahead of the game and will see your loan term decrease.

For mow details on how to survive a volatile market contact info@SportzMortgage.com.au

The recent interest rate rise of 0.25% for many people has placed extra pressure on there ability to make their mortgage repayments. The rise of .25% can equate to an extra $50 to $100 per month. This is generally in addition to what was already placing some people is a difficult situation. If you are currently feeling the squeeze on your finances due to the recent rise or other reasons - help is available.

In fact, now would be a good time to talk to SportzMortgage who have experts on hand to assess the state of your current mortgage and recommend possible solutions. SportzMortgage can custom build a mortgage solution that will better suit your current needs and reduce the weekly repayments to a manageable amount.

Independent mortgage brokers are able to think laterally about the unique circumstances and in most cases will be able to repackage your loan in a way that reduces the immediate financial pressure. They have access to lending products from all of the major lenders in Australia, giving you choice to find the loan that suits you.

At SportzMortgage.com.au we are able to provide a range of options – allowing you to take control of your mortgage immediately. Some of the possibilities include: -

• 40 Year terms to reduce your payments but not affect your capital growth
• Low fixed interest rate from three to five years to reduce worry about more rises
• Loans with no annual or account keeping fees
• Flexible Repayments – particularly for self employed

Our lending associates have a wealth of information and expertise, with comprehensive knowledge of products which to allow them to assess and recommend the right loan for you. Why not make the call and speak to one today?