Brad & Robyn’s Caravan Trips & Tips

With the Reserve Bank leaving rates on hold for the minute, it is looking increasingly likely that rates will go up towards the end of 2009 and so we thought it timely to suggest ways to prepare for an increase in interest rates.

Regardless of whether rates rise or fall, it is always a good idea for home owners to prepare for slight increases in interest rates so that they do not get caught out. I often get asked, “What can we do about rate rises?” My first answer to this question is always; Make sure you have seen a good mortgage broker and have your current position reviewed to make sure that your existing home loan is the absolute best product for you and your circumstances. Often by reviewing your home loan, you will discover that there are many savings to be made just by moving or changing little things within your set-up. Often, you do not even have to change banks in order to get a better interest rate.

Some other great steps you can take to reduce the effects of rising interest rates are as follows:

1. Consider fixing part, or all, of you home loan.
If you have a tight budget and want to know exactly what your repayments will be in 2 years time, fixing your home loan can allow you to lock in a rate which will not go up and down with variable interest rates. You do however, have to consider losing some flexibility in your arrangement.

2. Increase your loan term from 20 or 25 years out to a 30 year term.
By increasing the term of your loan from 25 to a maximum of 30 years will reduce your monthly repayments considerably.

3. Don’t be fooled by Honeymoon Rates.
Some banks advertise very low honeymoon rates to customers in an attempt to lure more clients. Often these products default to a higher-than-standard variable rate after the honeymoon period has expired. If you do take a honeymoon rate for the first 12 months, have your broker tell you what your repayments will be at the end of the honeymoon period and make these payments through the initial 12 month honeymoon period. This will enable you to get ‘ahead’ in your repayments along with avoiding the shock of the honeymoon rate finishing.

4. Consolidate your debts.
As the cost of money rises across the board, personal loans and credit card interest rates often rise with home loan interest rates. Consider rolling all debts into your property loan, this saves you having to pay a much higher rate of interest and in most cases can save you about 10% in interest.

These are just a few suggestions from a long list.

This information is only the views of the writer. It is advised that everyone seeks their own independent advice before obtaining any type of finance.