Interest Rates and how they affect your loan

With Uncertainty surrounding interest rate movements. There has never been a more compelling reason to consider the impact rates have on your mortgage.

The rate of interest that you will pay on your mortgage depends on a combination of factors. This includes The Reserve Bank of Australia cash rate, your lender and the type of loan.

The Type of Loan

Different loan come with different interest rates. So if your loan has a range of features, such as redraw, offsets or early repayment facilities, you’ll usually pay a little more in interest.

Alternatively while a basic loan doesn’t have all the bells and whistles of other products the interest rates are typically lower.

When assessing we explain which loan best suits, how the different features work to assess whether they are worth paying for the extra features.

The Type of Rate

With the possibility of movements in interest rates, some borrowers are choosing to fix their home rates or “lock in a rate’ for a selected period of time. If your considering this the fixed interest rates are usually higher than the variable rate. However, if rates are on the rise and you’re concerned they’ll keep going up fixing your rate will ensure consistency in repayments each month for the selected period you have chosen.

If you’re concerned about a rate rise but still want the flexibility, then you might be better off hedging your bets by splitting your loan into a fixed rate portion and a variable rate. Thus having the best of both worlds.

Lessen the impact of a rate rise

Should rates rise there are a number of effective ways to lessen the impact on your finances:

Factor in possible rate rises

Leave room for a number of interest rate rises when you assess your borrowing capabilities. This may mean reducing your mortgage amount slightly or purchasing property that’s at the lower end of you price range.

Interest Only

If you’re really struggling to keep up with rate hikes, you can consider changing to an interest- only loan. While not an effective long term strategy for owner occupiers, it might be an option while you deal with your current position.

Refinance

Your situation may have changed from when you first took out your mortgage. For example you’ve now only got one person in the household earning a salary. We can help you decide what mortgages will suit your situation which might include taking the loan back over 30 years to reduce your monthly payments.

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