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How can I prepare for higher home loan repayments?

5 minute read
Home and Property
 

Interest rates are rising, which means regular repayments on your mortgage are probably going up too.

With the uncertainty about how high rates will go and considering how we’ve been used to low interest rates over the last decade, now is a good time to think about what higher interest rates will mean for you


Here are five tips to help you make the best of this changing situation. 

1. Avoid unnecessary worry – arm yourself with the facts.

Beyond Bank’s Mortgage Repayment Calculator can help you work out how much your repayments will change if interest rates go up. You can check what your repayments will be for different interest rate scenarios to help you plan for your finances. 

2. Review your budget.

Review your income and expenses. Are there any areas where you can be smarter with your spending, such as making your daily coffee instead of getting takeaway? Look at your subscriptions and memberships – are there any you don’t really use and could cancel? You can also look at your food and grocery bill and make savings by meal planning or buying home brands. Reviewing your insurance and energy providers could also help you get a better deal.

3. Open an offset account.

An offset account is an account linked to your mortgage loan that you can use for everyday banking or for savings.  When you have an offset account, interest on your home loan is only charged on the difference between your outstanding loan amount and your offset account balance. For example, if you have a loan of $250,000 and you have $50,000 in your offset account, you are only charged interest on $200,000.  

While an offset account won’t change your monthly repayments, it will help you pay your loan off faster. 

4. Keep saving.

You can open multiple offset accounts to help you save for specific goals while still reducing the interest on your loan. The Beyond Bank+ app has a range of features that can help you achieve your savings goals, such as goal setting and regular reminders to keep you motivated. 

5. Think about fixing your interest rate.

As interest rates rise, you might be thinking about fixing the rate on all or part of your loan.   

At a time of rising interest rates and economic uncertainty, fixed rates can be a good way to make your repayments predictable, no matter how high the variable rate climbs. However, fixing your mortgage rate may mean giving up some flexibility. For example, some fixed rate loans don’t allow you to make extra repayments or to pay out your loan early (Beyond Bank allows additional repayments of up to $25,000 per year in a fixed period).  

It’s also important to be aware that the fixed rate term will come to an end at some point. That means you could have a sudden increase in your repayments, depending on what interest rates are doing when your loan changes to a variable rate when the fixed rate term is up.   

If you’re having trouble deciding whether to fix your mortgage rate, you can choose to fix the rate on just part of your loan. 

Find out more about fixed and variable rate loans


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