How to Prepare for Interest Rate Changes
- janet9362
- Apr 1
- 3 min read
If Interest Rates Increase
Monthly repayments go up, making it harder to manage finances.
Borrowing power decreases, affecting home buyers.
Home values may slow down, impacting investment properties.
If Interest Rates Decrease
Lower repayments, freeing up more money for savings or investments.
More people can afford loans, increasing housing demand.
Better refinancing opportunities, allowing borrowers to secure lower rates.
Regardless of the direction, it’s important to plan ahead to protect yourself from financial stress.
How to Prepare for Interest Rate Increases
1. Review Your Current Mortgage Rate
Check your interest rate and loan terms to see if you’re on a competitive deal. If not, refinancing might help secure a better rate.
Tip: A mortgage broker can compare loans to find lower rates and better features.
2. Consider Fixing Your Interest Rate
If you’re worried about rising rates, locking in a fixed rate can provide stability.
Pros of Fixed Rates: Predictable repayments, no surprises.
Cons: Less flexibility, may miss out on future rate drops.
Tip: Consider a split loan—part fixed, part variable—for a balanced approach.
3. Build a Financial Buffer
Set aside extra funds in an offset account or savings account to cover potential rate rises.
Even $5,000 in an offset account can reduce your interest payments.
Aim for 3-6 months' worth of repayments in savings for peace of mind.
4. Increase Repayments Now
If rates are low, make extra repayments before they rise. This reduces your loan balance faster and lowers the impact of future rate hikes.
Example:
A $500,000 loan at 6% over 30 years = $2,998/month.
If rates rise to 7%, repayments increase to $3,326/month.
Making extra repayments now can help soften the impact.
5. Reduce Household Debt
If you have credit cards, personal loans, or car loans, paying them off can help free up cash flow and make mortgage repayments easier to manage.
Tip: Consolidating debts into your home loan through refinancing can reduce your total interest payments.
How to Take Advantage of Interest Rate Decreases
When rates drop, it’s the perfect time to review your mortgage and maximise savings:
1. Refinance to a Lower Rate
A rate drop means lenders offer more competitive home loan deals. Refinancing could:
Lower your monthly repayments
Reduce the total interest paid over your loan term
Free up funds for investments or renovations
2. Keep Repayments the Same
Instead of reducing your repayments when rates drop, keep paying the same amount to pay off your loan faster.
Example:
If your repayments decrease by $200 per month, but you keep paying the original amount, you could pay off your loan years earlier!
3. Use Extra Savings for an Offset Account
With lower repayments, you can increase savings in an offset account, which reduces the interest charged on your home loan while keeping funds accessible.
Should You Refinance During Rate Changes?
Yes, if:
You can secure a lower rate and reduce repayments.
Your loan is no longer competitive.
You want better loan features (e.g., offset, redraw).
No, if:
There are high exit or break fees on your current loan.
You plan to sell your home soon.
You’re already on a low, fixed-rate loan.
A mortgage broker in Bathurst or mortgage broker in Lithgow can assess your situation and help you decide if refinancing is right for you.
How to Prepare for Interest Rate Changes:
Final Thoughts
Whether rates go up or down, staying informed and reviewing your mortgage regularly ensures you’re always on the best deal.
Need expert advice on managing interest rate changes? Contact Sparks Finance for a free mortgage review and let’s make sure your home loan is working for you.
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