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How to Handle Rising Interest Rates & Pay Your Mortgage

John Tran
June 26, 2023
How to Handle Rising Interest Rates & Pay Your Mortgage

If you own a home, you are most likely paying a mortgage. And if you are currently paying off your mortgage, you may have noticed that interest rates have been rising recently. This can be distressing news for homeowners who are already struggling to keep up with their monthly mortgage payments. However, the good news is there are still ways that you can proactively handle rising interest rates and pay off your mortgage without breaking the bank. In this blog post, we will discuss some tips and tricks that can help you navigate this situation with ease.

RBA attempts to increase the cash rate again to 4.10%

With inflation currently at 7%, another 25 basis point rise was announced on Tuesday, bringing the cash rate up to 4.10%. The RBA governor Philip Lowe explained that this increase aims to bring inflation back into the target range of 2-3%. This is a positive move for the Australian economy, as it shows the RBA's commitment to keeping inflation in check.

It's important to bear in mind that excessive inflation can have major negative effect on the economy over time, that's why controlling inflation is so critical to ensuring that the economy grows and improves over time even while this rate hike may cause an increase in mortgage rates, repayments, and other financial product expenses. 

How to handle rising interest rates?

1. Refinance Your Mortgage

A great way to combat rising interest rates is to refinance your mortgage. Refinancing means replacing your current mortgage at a lower interest rate, and it can help save you thousands of dollars in interest charges when the market rates are favourable. The catch is that refinancing involves closing costs, which can dent your pocket in the short term. It also takes time, requires a good credit score, and involves a lot of paperwork, so before going down this path, consult with a mortgage broker and determine if refinancing is the right move for you.

2. Increase Your Monthly Payments

Increasing your monthly payments is a great way to pay off your mortgage faster and save on interest over time. However, it's important to analyze your financial situation before making any decisions. Take a look at your budget and see if you can realistically increase the amount that you are paying each month towards your mortgage. It might be necessary to make some cuts in other areas of your budget in order to free up funds to put towards your mortgage. However, doing this could mean big savings over the long term. Put a plan into action and watch as your balance steadily decreases! .

3. Switch To A Bi-Weekly Payment Plan

Making bi-weekly payments on your mortgage can be extremely beneficial. It takes the same amount of money to make a payment every two weeks, but it will result in 13 payments being made during the year instead of 12. This is because you are essentially making one extra payment annually that goes towards paying off your principal balance faster and can help reduce the total cost of your loan, as it will ultimately mean paying less in interest over time. Additionally, by making bi-weekly payments, you can also take advantage of lower interest rates if they become available. 

4. Cut Back On Extra Expenses

It could be time to reduce some of your excess costs if rising interest rates are making it tough for you to pay your mortgage. Examine your spending plan to find areas where you may reduce your monthly expenses. You can save a lot of money by cutting back on expenses like eating out or entertainment, which you can then use to pay down your mortgage.

5. Seek Professional Advice

It's crucial to seek professional guidance from a financial counsellor or a mortgage specialist if you're having trouble managing the rising prices of your monthly repayment because they can show you how to handle your situation and ensure that you're making wise choices. They will go over all of your options with you, including refinancing and mortgage restructuring, and assist you in determining which one best suits your requirements. Additionally, they can offer helpful advice on how to handle rising interest rates in a way that won't put an undue burden on your budget. 

When should you ask for help?

If you're yet to fall behind on your mortgage repayments, it's an ideal moment for you to consider negotiating a more competitive deal with your current lender. It doesn't hurt to ask if they'll reduce the interest rate or offer other terms that would make repaying your loan easier and less costly. If they can't agree to better terms, then you may want to look into refinancing your loan with another lender.

Refinancing gives you the opportunity to shop around for a better rate, as well as potentially consolidate multiple loans or balance transfers into one single payment that could be easier to manage. However, it's worth noting that any inquiries associated with refinancing will appear on your credit score and may impact your ability to obtain more competitive rates. So it's important to weigh the pros and cons carefully before going ahead with refinancing.

Ultimately, if you're yet to fall behind on repayments, you may have the flexibility to explore different options in order to secure favourable terms for your loan repayment. Keeping your credit score in good standing is a great way to ensure that you can access better deals in the future, so if you're able to take action now it may be beneficial both in the short and long-term.

Last Words

Rising interest rates might make it difficult for homeowners to make mortgage payments. However, by keeping in mind these suggestions, you can create a strategy for coping with increased interest rates and successfully pay off your mortgage. Always do your homework and consult an expert before making any important financial decisions. You can easily manage rising interest rates and keep up with your mortgage payments with a little strategy and work.

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