There is panic in the media after the release of the most up-to-date inflation figures. It is practically a certainty that interest rates will undoubtedly be increased later this week and probably at least one time again before the finish of 2006. Many home owners are still visiting grips with the most up-to-date increase in May 2006.
Clients are consistently asking us what they should do to guard themselves from future rate rises. There is no simple answer and some decisions are only a calculated gamble. As a reply to any or all the concerned The Aussie Method Home owners - below are a few useful tips on the best way to stay ahead of the rising interest rates.
1. Take the anticipated rate increases into account
You have in all probability heard it all before but - Budget Makes Perfect.
Before you plunge into a property purchase or property refinance, sign up for a house renovation loan or end up buying a fresh car, please take a moment to take into account whether you are able this expense. We strongly advocate that you draft an in depth budget. In this budget you must factor in possible interest rate increases.
It is no good committing yourself to a loan which you can afford today but cannot afford if the rates move up. It would be prudent to check the affordability of one's loans if the rates were to move up by as much as 2 percentage points. By knowing what you would have to do should the current rate hike continue you may well protect yourself from losing your property in the foreseeable future
2. Review your current loans
You might have several loans including charge cards, personal loans and the like. Generally these come for your requirements at a greater interest rate than the rate you're paying in your mortgage. If you are trying to find ways to save interest costs, the easiest method is to consolidate your entire outstanding unsecured loans into your mortgage. Admittedly this is not always possible. To take advantage of such debt consolidation you must have sufficient equity in your home.
3. Save some deposit
Despite all the offers in the media for No Deposit Home Loans, it's not the most effective idea to act on these. We're not in a buoyant property market now and every dollar you manage to build towards your deposit will make you home loan repayments more affordable. Remember, every dollar you borrow attracts interest, therefore the more you save the higher prepared you're when rates rise.
4. Think about a basic no-frills loan
Look around at the available loan products. When you yourself have had your house loan for quite a while you might find that the Australian Home Loan market has grown and offers a selection of flexible loans to match most borrowers. A basic variable home loan can save as much as one percent off the standard variable rate. The products are limited in features, however if all you're after is cutting your rate down as much as The Aussie Method possible - a no frills loan could be the answer.
5. Fix the rate
Although the best time to fix your mortgage rate might be behind us, it could be possible to lock in all or part of your loan for a competitive rate.
Fixed rates are great if you concern yourself with the interest rates getting away from control. By fixing the rate you will need to pay for on your own mortgage, you gain greater certainty over repayments and minimise the impact of further rate increases ahead. The fixed rates offered today have a tendency to reflect what economists believe may happen to the variable rate in the future. When there is an expectation that the variable rates will be increasing - the existing fixed rates will undoubtedly be higher than the existing variable rates. Hence fixing the rate becomes sort of a risk that by paying more today you will save more tomorrow.
6. Boost the frequency of one's repayments
One of many easiest ways to pay for off your loan sooner (and cut your interest bill) is to boost the frequency of one's repayments. You could choose to go from monthly to fortnightly repayments. Fortnightly repayments reduce the principal, providing you more equity and ultimately, lower loan costs.
7. Put up a Type of Credit
One of the finest methods for securing yourself against future rate rises (or some other financial eventuality for that matter) is to set up a type of credit against your property.
Line of Credit or Equity Loans as they are also known, have gained great popularity of late. These items allow it to be feasible for borrowers to pay for extra on their house loan and "redraw" it when needed. You might just discover that having usage of an additional five or ten thousand dollars could make it more straightforward to keep your mortgage in case your repayments are increased outside of your initial budget.