With a bit of early planning, the move to a new repayment doesn’t have to rattle your budget.
If you managed to lock in a low fixed rate as interest rates were beginning their steady climb, you may be dreading the day your loan reverts to a higher variable rate. With the right preparation though, you can plan for a smoother transition to your new repayment and revisit your budget in the process. Here are a few tips to get a head start.
Understand what’s coming – and why.
Given the Reserve Bank (RBA) increased the cash rate 10 times in the most recent financial year, it’s likely the fixed rate you’re on now will be lower than the standard variable rate. When the RBA lifts rates, lenders are hit with additional charges, which makes it difficult to keep their borrowing rates ultra-low (keep in mind, customer-owned banks are famous for consistently offering competitive rates).
In the months before your fixed term ends, speak to your bank, mutual or credit union about the rate to which you’re likely to move. You can then use a mortgage calculator to figure out how much extra you’ll be paying each fortnight or month.
When you speak to your financial institution, they may also be able to provide you with some ideas about different loans or support on offer to ease the sting.
Start putting away any extra income, savings or windfalls now.
While the higher cost of living has left few of us with extra cash to splash around, now may be the time to look for upcoming opportunities to save. If you’ve got a tax refund or bonus coming, you may wish to put that away to help cover higher repayments.
It could also be worth examining your household budget more broadly to see if costs can be reduced elsewhere. Ideas include shopping around for a better electricity or gas deal, trimming back memberships and subscriptions, and changing the frequency of nights out or takeaway.
Choose whether to fix again, get a variable rate, or take an each-way bet.
As a borrower, you have the power to choose what sort of interest rate you’d like from your lender. You can move to a variable rate – where the interest rate generally follows the RBA cash rate – migrate to another fixed term or choose to split your loan between both.
While the decision is up to you and depends on your own circumstances, we find borrowers tend to choose a variable loan if they favour flexibility and expect the cash rate to decrease in future. Borrowers who prefer certainty and expect rates to continue to rise may choose to fix again or take an each-way bet.
While interest rates – by their nature – tend to bounce around over time, you can be assured as a member of a customer-owned bank that we’ll do our best to provide the most competitive rates without compromising on our service standards.
If you’d like more information about home loans with The Capricornian, contact us or reach out to one of our friendly local lending specialists.
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