Managing a home loan is challenging, especially when your mortgage is on variable interest in a volatile market. It makes things more complex when the interest rates increase. As the bank rates have been on a constant rise for the past few months, managing mortgages is becoming a massive challenge for all homeowners with variable home loans. Whether a homeowner or a mortgage broker, you must know how to manage interest rates in such a scenario.
If you are looking for some tips, here are some to help you see through the tough times.
MAKE EXTRA REPAYMENTS
It feels nice to pay a low monthly amount towards your mortgage repayment. Whether a residential mortgage or commercial loan mortgage, you should make extra repayments when the interest rates are relatively low. It will help you because lower repayments mean higher interest in the long run, more so in case the interest rate increases. If you can make extra repayments, you can reduce the principal on loan, which automatically translates into less interest during the loan period. Experts suggest it as a critical step towards being mortgage free!
TOP UP YOUR OFFSET ACCOUNT
You can add money to your offset account or transaction account so that the balance offsets against your home loan. It can also result in lower interest rates, especially if you anticipate a hike in your variable interest rate in the future. Using your offset account can reduce the interest rates, which will help you pay off your home loans faster. However, you should bear in mind that your offset account might attract a monthly or annual fee.
FIX YOUR INTEREST RATE
Another way to manage variable home loans is to transfer your interest into a fixed rate.The fixed home loan rates option is popular in several countries but not so much in Australia. Fixed mortgage rates are a great way to ensure your home loan amount doesn’t change even if the interest rates soar. It can hedge against rising interest rates and stabilize your interest expenses. Fixed-rate loans are available for up to five years. However, the downside is that you will not enjoy any benefits if the interest rates drop. Also, these loans typically have higher rates and higher fees.
NEGOTIATE A BETTER DEAL
Although it might be stating the obvious, you can ask your bank or lender for a refinance home loan. Negotiate for a better deal, and don’t be afraid to shop for better home loan deals. If you are a first-time buyer, you can look for the best home loan for first-home buyers and other options. If you have already bought a home mortgage, you can switch it to a new lender. However, switching can be a hassle as the new lenders will scrutinize your expenses closely and might not approve the request quickly.
ALWAYS REPAY ON TIME
Lenders can report your repayment history to credit reporting bodies. It includes various financial instruments such as credit cards, personal loans, home loans, and investment loans. Hence it is more important than ever to ensure that you repay your dues on time. Late payments and non-payments will impact your credit score.
BUILD YOUR CREDIT SCORE
Whether you opt for a first home buyer loan or a commercial property loan, your borrowing power depends on your credit score. You should be familiar with your credit score and understand how to make it work. It will help you in making better financial decisions based on facts. You should educate yourself on credit, including consolidating your debts and budgeting.
All these steps will help you manage interest rates on your variable home loan. You shouldn’t hesitate to get the help of a mortgage broker if you can’t work out how the interest rate rise will affect you. The best mortgage advisor would work with you and help you find out what you can afford without toppling your financial planning. So, whether you are looking to refinance home loans or new mortgage deals for your home, always be prepared for interest rate hikes in the future. It is a good idea to build up a savings buffer, so your plans don’t go awry when the variable home loan rates increase.