Dealing with Changes in Interest Rates

If there's one certain thing about interest rates, it is that it is always subject to change. The past few months have seen massive drops in the rates, although the RBA has put a halt to it in Melbourne Cup Day. There is still a wait and see attitude, which may put the rates as it is, lower or higher depending on the economy's direction in the coming months.

Because rates always change, it is important that you know how to respond to it. The right response can help you save a lot of the money or even help you pay off your mortgage sooner.

In this article, we will share with you a few strategies you can use depending on how the rates change. Let's start with...

When Rates Drop

Let's talk about this first since this is more relevant right now. When rates drop, there are a number of strategies that you can take. One is that you can use the extra cash you now have to make bigger repayments on your loan. The great thing about this is that you get to shorten the term of your loan without actually increasing your expenses. You're still paying the same amount to your lender, but it now has a bigger impact on your mortgage because of the lower rates.

Another strategy you can employ is to take that extra cash and pay off your other debts, such as your car loan or your credit card debts. While this won't directly affect your mortgage, this move will have an impact on your overall finances.

Now let's move on to when rates rise.

When Rates Rise

The unfortunate thing when rates go on an upward trend is that your salary doesn't go up as quickly. What you can do then during this uncertain period is to switch to a fixed rate loan. This will help you counter the effects of rising rates and therefore secure your finances.

You can also increase your repayments just as when rates drop. Paying more has the same effect since it can shorten your term significantly, so you can have financial freedom sooner.

Regardless of whether rates rise or drop, it is always important that you keep track of the changes in the rates. This will allow you to recognize trends, so you can adjust your strategy accordingly early on.

It also helps to choose the right type of home loan, as it makes repaying it more manageable. Our qualified advisors at Rate Detective are ready to help you find one by assessing your personal circumstances before providing you with rate comparisons. Contact us today for more details!

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Published on November 11-th, 2012 in Home Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.
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