Handling an Increase in your Home Loan Interest Rate

Interest rates may rise and fall over time. With each change in the interest rate, your home loan repayments are affected. So, what if interest rates rise and you are not prepared? What strategies can you do to keep yourself afloat?

Plan your budget accordingly

Make sure that you are spending your money wisely and your money is not wasted on things that you don’t really need. You also have to consider having to give up some indulgences in order for you to afford your home loan repayments. You can also use a budget planner such as the ASIC’s budget planner.

Take a Second Job

Find additional ways to earn money, like finding a part-time job that would fit your lifestyle.

Rent a Room Out

You can also consider taking a boarder or a student to rent your spare room.

Sell other Assets

Check which asset you can possibly live without.  For instance, you may have two cars, could you make do with one? Selling an asset that you can’t really afford to maintain will give an instant boost to your mortgage and may even reduce your expenses.

Move in with Family

It is a great idea to consider moving back to the family home or sharing with friends or relatives for a year or so. You can rent out your home which might give you some breathing space.  It also allows you to make extra repayments, hence enabling you to build a buffer before you return to your home.

Switch your mortgage

You may also consider switching your home loans, especially if you’ve been with your current lender for a while. Check if there are cheaper loans available that suit your needs then call your current lender to see if they will match another lender’s rate. Generally, the only thing you have to do to get a better deal is ask.

Go ‘Interest Only’

Another option is asking your lender if you could make ‘interest-only’ payments on your loan for a short while. This will reduce your repayments but will also extend the time it takes you to repay your loan, so you should only use this option as a last resort. Changes to interest only on your loan can also affect the interest rate you receive from some lenders. It might be worthwhile checking the market if your are thinking of switching your loan.

*This post originally appeared on ASIC Moneysmart. To read more, kindly see Coping with a Home Loan Interest Rate Rise.