Yes, we have high home loan interest rates and we could have these for a few years.
We have had high home loan interest rates before, but for many homeowners we have gotten used to the low interest rates and our spending has adjusted to those too.
So now we need to know what we can do to combat these and we have come up with six things that you can look at:
1: Fixing or Refixing Your Home Loans
Most people have all or most of their mortgage on a fixed home loan rate.
It makes sense as the fixed rates are generally lower than the floating rates, but also the short-term rates have traditionally been lower than the longer term rates.
Of course it’s easy at times like this to wish that we had fixed for longer, but we cannot look back and have to deal with what we have now. We also cannot predict the future and therefore have to be a little more strategic.
In most cases our mortgage advisers would suggest you split your mortgage up into a few loans and fix each loan for a different period and by doing so you reduce the impact of wild swings with interest rates, but also this ensures that you have the flexibility to repay your loans faster which is a great way to (a) save money and (b) ultimately remove your risk.
We are also seeing some good discounts off the advertised rates, and those rates that may be offered via the online banking or banking Apps. It’s definitely well worth getting an adviser to negotiate the rates with your bank and while they may not always get a lower rate, at the moment the banks are discounting the rates when pushed and there is a good chance that you might get offered a lower rate.
It also costs nothing to get an adviser to negotiate with your bank – the adviser gets paid by the bank for looking after you.
2: Extend Your Loan Term
If you have had a mortgage for a while, or if you have been paying more than the minimum then you may have your mortgage on target to be paid off in 10-years or 15-years instead of the maximum 30-years that most people start on. While we all want to stay on target to pay our mortgages off as quickly as possible, it is sometimes prudent to give yourself some breathing space and extending your loan term will lower your repayments while we have high home loan interest rates, and this allows you to keep your lifestyle while still paying your mortgage; albeit over an extended timeframe. Of course if your loans are structured correctly then you can still continue to pay the higher amounts if you can, but it removes the need to do so and therefore relieves the financial pressure.
When interest rates come down again, or as your income increases (your finances improve) then you can increase your repayments again.
Talk to one of our advisers who can make sure that your loans are structured to allow this too.
3: Refinance Your Mortgage
We often hear people say that “home loans are all the same, but this bank had a lower interest rate so that’s what bank I went with” – but the fact is home loans are not all the same.
Some home loans offer a lot more flexibility than others and it’s at times like this when interest rates are increasing and families are feeling the financial pressure that people start to look at their mortgages are ask questions.
When we had the record low interest rates many people were not focused on paying off their lending any faster than needed as it was seen as “cheap” money and with no real incentive to repay debt. Since the interest rates have increased there has been more focus on the mortgage, and a lot more conversations on getting the mortgages paid off.
Refinancing is often a good way to get a fresh start.
You already have a mortgage so have a bit more time to review things, and see what is the best option for you.
Of course everyone likes to have the lowest interest rates, but the bank that has the lowest rate today may be a different bank to what has the lowest rate tomorrow, and sometimes a bank may have the lowest 1-year rate but a higher 5-year rate.
Your focus with a mortgage should be to get it paid off, and while there is no incentive for the banks it can save you a lot of money if you can pay your mortgage off faster. As mortgage advisers we have been focused on this and can help implement the strategies that can see you paying a 30-year mortgage off 10-years earlier (or more).
As an example: if you paid a $500,000 mortgage off in 20-years instead of 30-years you could save more than $230,000! (this is based on a static interest rate of 6.25%)
Plus: as an added bonus the banks are offering good incentives to switch with cash contributions being popular at the moment. Having an adviser on your side helps ensure that you get the maximum cash contribution from the banks.
Do you want to review or refinance your mortgage?
We have helped a lot of people get better loan structure so they can pay their mortgages off faster, and this sometimes means refinancing is the best option, but not always.
4: Consolidate Your Short-Term Debts
One of the biggest drains on your budget is the short-term debts that can cost a lot. It’s always been easy to get credit with so many offers which may start as interest free credit or products offered and promoted with low weekly repayments, but they are all debts and need to be repaid.
The worst thing about many debts is the money that they take from your pay.
If you have a home and a mortgage then we may consolidate any debts into your mortgage at the lower rate, but sometimes it can be better to consolidate as a separate loan. We have set up another brand called Smarter Start where we focus on this type of lending and it’s been successful as people are focused on what they can do to improve their situations.
We recently helped a couple reduce their repayments from about $215 a week to $96 per week. They had a personal loan with their bank and were being charged 18.95%, they had two credit cards both on 20.25% and a Q-Card at 27.99% so it made a lot more sense to consolidate these debts into a new personal loan. Because of their situation and with some initial work to get the loan application right we were able to get them a loan at 9.90%.
You should at least check and see if you can replace your expensive debt with a lower cost debt. It costs nothing to apply, and of course you only accept the loan offer if it’s going to be better than what you have now.
5: Have A Revolving Credit Account
We believe that having a revolving credit account is the best way to manage your home loans, but you need to understand how it works and it needs to be managed carefully.
Most banks will suggest that you use your revolving credit for all your transactions as technically that is the most efficient way; however due to the “human nature element” in most cases we suggest that you keep your revolving credit account just for managing your home loan and house expenses (rates, insurances etc) and keep your everyday accounts separate and even with a different bank. Over the years this has proven to work better for most people as they do not see the available credit as something that is easily accessible for spending.
6: Watch Your Spending (Budget)
Okay, so it’s easy to write a budget but not so easy to keep to one!
We are not great fans of writing budgets as most of the one’s we see are unrealistic and we know that people will never stick to them for long. In our view people should manage their spending and over time try to change their spending habits but do this one step at a time.
The first thing that you should do is review what you have been spending, and once you have that information you can then review and find something to focus on. You can then find a new area of spending to focus on each month and gradually work through all of your expenditure.
For this we suggest that you get PocketSmith which is a very easy to use and affordable piece of software where you can code your expenses and monitor them over time. It has two great features that we love: (1) you can set it up to automatically upload your transactions from all of your bank accounts with multiple banks, and (2) you can go back 3-months and upload past transactions to create a great starting point.
Do You Want Help From Our Advisers?
Our advisers are very familiar with the implementing changes to help people combat high home loan interest rates.
We can review your situation and provide advice on the best options.
Often this is to stick with your existing bank, but there may be some changes suggested regarding how the loans are structured or managed. Other times it may be better to refinance to get a better loan.
If you have some short-term debts then we can help you review those and may consolidate them into your mortgage or into a better debt consolidation loan – which we have access to.
Speak to a mortgage adviser today and see if there are any changes that you can make to help combat the high home loan interest rates.
