1 – Not too late to fix
It may seem like the time to fix has passed you by, but you could still benefit from making the switch now to preset your repayments should there be another rate rise.
Don’t put all your eggs in the one basket though, warns Hermes Liu of Morgan Brooks Direct. “I still think it’s a good idea to fix, but don’t fix the entire loan. This is because with a fully fixed loan, many lenders have limits on the repayments or fixed repayments. This could end up with you losing out because you may not be able to pay it off as fast as you may be able to,” he says.
“Also, normally a fixed rate would be higher than the variable – say .3 to .7 higher than the standard variable rate. So unless the RBA rate goes up by around .5 in the next 2 years, you could still be better off with variable.
The verdict? “I think the best idea might be a 50/50 strategy. ½ fixed, ½ variable. This way you get the best of both worlds and can enjoy the stability of a fixed rate, with the advantages of a low variable as well,” says Liu.
2 - Consolidate debts and refinance
You want to do away with debt? Join the club. Unfortunately, there’s no magic wand than can be waved to clear the slate, but you can manage debt by consolidating.
Amalgamating all your debt into one monthly payment and consolidating all borrowings under one lender can often garner rate discounts. There are also a few ways to go about it – unsecured loans, ‘second charge’ mortgages, re-mortgaging, an advance from an existing mortgage provider and the credit card strategy of transferring various credit balances onto one credit card.
“Even after the two recent rate increases, home loan rates are well below credit card and personal loan rates, and refinancing your mortgage on a lower rate and consolidating other debt into the home loan can dramatically reduce your total monthly repayments and help you get on top of debt,” says Peter Brady, of Sapphire Mortgage Services.
But as exciting and convenient as it sounds to have all your debts under the same umbrella, interest rates and creditor - be sure not rush into it. “It is good to refinance, but you need to be careful. Just because you land a good interest rate doesn’t mean it will be a good idea to refinance. Overall the cost might be much more expensive with ongoing fees or any other fees that might be there,” says Liu.
“Watch out for the exit fee. You have to ask yourself: What’s the pay-out figure on this?”
Brady agrees: “Make sure the loan you refinance onto has no ongoing fees and no fees for things like redraw and split loans.”
3 – Make repayments realistic
Think carefully about whether the loan repayments are going to suit your lifestyle and cash flow situation so you can pay the amount off consistently and comfortably – leaving room to move should another rate rise rear it’s head.
Go for comfort, says Rod Cornish, economist at Macquarie Bank. “People should be securing repayments they feel comfortable with, that they can pay off consistently.”
Greg Stevens from AIMS Home Loans suggests an alternative repayment reduction strategy: “You could change from principal and interest to interest only, but this would only be a short-term strategy, if you can't afford the increased loan repayments, as with interest only the actual loan is not being repaid,” he says.
To work out your true mortgage repayment rate, Gino Marra of Carrington National says work out your monthly repayment, multiply it by 12, then divide that by 52 weeks.
4 – Shop around
If you’re set on refinancing, the best tip anyone can give you is to be prudent in your choices and above all - shop around. That way you can get the best deal possible, and the right fit for you, which will come in handy if rate rises hit.
The current market environment has impacted on brokers and the industry substantially, turning it into a very competitive field, where lenders are eager to get your business and you have the power – so take advantage.
“There are a number of ways borrowers can lessen the effect of the August rate rise but by far the single most effective way to do so is to refinance at a lower rate,” says Brady.
“Look around for lenders who offer competitive fixed rates that can be locked in on loans that also have a low variable rate and no ongoing charges. That way, as well as reducing your repayments on a lower rate, you know that when you come off the fixed rate you will revert to an equally competitive variable rate.”
Just watch out for ongoing fees. “There's no need to have to pay fees these days due to increased competition from non bank lenders,” Brady says.
5 – Make payments bigger and more regular
Making weekly or even fortnightly repayments will help reduce the amount of interest you ultimately pay over the life of the loan, according to Brady, and that’s more cash in your pocket in the long run. “Weekly repayments are the way to go, depending on the borrower’s lifestyle and cash flow, to bring down the principle faster,” adds Cornish.
Paying extra off your loan is also recommended. “Pay weekly – and pay your salary into your mortgage,” says Marra. “If you’re disciplined, put all your expenses on a credit card. Don’t go over a limit of $2,000, but pay all your expenses from the card and pay your mortgage straight from your salary – if you can afford to pay off your credit card off in full at the end of the month!” he says.