Protect Yourself Against Rising Interest Rates
Whether you’re a seasoned property investor or a first-time buyer, there are ways you can reduce mortgage stress and protect yourself against rising interest rates. How? As property wealth management and mortgage experts, we’ll share our wisdom on how to ride the wave of the property market’s highs and lows - ensuring you move forward on your path to purchasing more properties.
First, we’d like to touch on some truths about the current situation. Rising rates, inflation and price hikes are part of the economic cycle. This is not to downplay the impact that they have, but the focus is on the word CYCLE here. Everything comes with balance - the current state is temporary and equilibrium will be restored. The cycle is a key component of what makes a healthy economic system. Working with a Mortgage Advisor who is well aware of the peaks and troughs can help to subdue this anxiety and you will sleep knowing that you have the right advice on board.
Factor inflation into your home loan
Overshooting with repayments and the amount you can save will give you a buffer for times such as these. If you’re in the process of taking out a mortgage, discuss this with your Mortgage Advisor to risk-proof your home loan. This could mean paying in slightly more each month but will set you up with a financial system that works in tune with changes in interest rates, pay off your home loan faster and reduce overall stress (as you will be used to paying slightly higher amounts on your loan.
Think about your rate type
Variable rates can be great when the going is good economically. But whilst they offer flexibility and the opportunity to take advantage of positive trends, they also leave you open to suffering sudden rate increases. With this in mind, with rate increases likely, looking for a fixed rate is advisable. This may increase your payments initially but will protect you from big shoots up in price and provide consistency too.
When the interest rate increases have been confirmed, get in touch with your Mortgage Advisor to discuss options and new rates. Remember, the power is still in your hands. Banks and other lenders are still in competition with each other and will go to great lengths to keep you as a customer. So keep that in mind as you go into negotiations. If their response is not competitive or in line with the rates you had in mind, consider looking elsewhere. Whilst this might cost money initially it could look to save you thousands over the lifetime of your loan. Before shifting across, your Mortgage Advisor will assess whether you have a high break clause with our current provider or you only have a few years left on your loan. If the answer is yes to either of these questions, we would generally advise against moving as it may cost you more than the saving is worth.
Dig into your finances
For many of us, the current economic climate is a wake-up call. Take a close look at your incoming and outgoing costs - are they matching up? Are there any ways you can make savings with some simple swaps? If you’re comfortably earning above your spending, or you receive your hard earned bonus or come into some money, consider portioning some of this into overpaying your mortgage. Again, this will help to build a buffer when times get tough or simply push you towards paying off your mortgage sooner.
Ditch the debt or consolidate it
Of course, being in debt is not ideal - and here we’re talking about credit cards or deferred payments. With so many different options of payment for cars, luxury items and so much more it’s very tempting to satisfy the need and think about payment later. But this can all add up. So, if possible, look to put a pause on this type of spending until necessary - if it’s currently outside of your means. If not, consolidating items like your car repayments into your home loan is another strategy that can see you save money on interest rates associated with taking our a separate loan.
We hope this article has empowered you with information to take control of your finances. If you’re looking for more in-depth advice on how to protect yourself from rising interest rates for your specific situation, get in touch with our Mortgage Advice Team for a complimentary 15-minute Discovery Call to see if and how we can assist you.