Interest rates have fallen steadily over the past six years but the tide may be turning, making now the time to be rate rise ready.
It’s been an extraordinary downhill run for interest rates ever since late 2011, taking the official cash rate to a historic low of 1.5% by January 2017. However, a recent survey by comparison site Finder found one in four money experts expect the cash rate to rise in 2017.
Furthermore, RateCity’s 2017 State of the Rates Report says longer term fixed rates are now much higher than variable rates, showing banks don’t expect the days of super low interest rates to last forever.
The bottom line is that now is the time to prepare for possible rate hikes. We explain five key steps to shore up your finances.
Being aware that your repayments can go up as well as down
If rates do rise, ask yourself how they will impact your money goals such as renovations and holidays as well as other lifestyle choices. Refer to online calculators to crunch the numbers.
Check your home loan is competitive
If your home loan isn’t charging a competitive rate now, not only are you wasting money, you’ll be left even more out of pocket if rates climb higher. Comparison sites like InfoChoice, Mozo and Finder make it easy to see how your home loan stacks up.
If a modest rate hike would leave your budget seriously stretched, it’s worth thinking about locking in a fixed rate loan. Look for a fixed loan that allows extra repayments so you can whittle down the balance sooner.
Ramp up extra repayments now
The best defence against higher rates is having a smaller loan balance. Making extra repayments or paying a lump sum now, while rates are still at record lows, helps to pay off the loan sooner and minimise the impact of possible future rate rises. Loans with offset or redraw facilities also provide you the peace of mind to access that extra money, if you need.
Scale back other debt
If interest rates head north, expect to pay more on personal loans and credit cards. If you have an outstanding credit card balance, try chiselling away at the debt today. Switching to a cheaper card can make this easier. With the average card rate currently sitting around 16%, chances are, you could do better by shopping around. Use comparison sites to discover low-rate cards. Interest rates are unpredictable, and no one can say for sure where rates are heading in 2017. But by following our five steps, not only will you be rate rise ready, your finances will be in better shape no matter which direction rates move this year.
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