Dealing with a mortgage interest rate rise

How to cope with interest rate rises

Home loan interest rates are starting to go up again.

Here are some tips to help keep your mortgage on track and what to do if you find yourself struggling to make your repayments.

Negotiate a better mortgage interest rate

If your lender increases your home loan interest rate, see if you can get a better deal. 

See what other lenders are offering

See what loans are available from other lenders. A comparison website will give you an idea of the lowest interest rates on offer, but usually won't cover all products available in the market. You may need to do your own research to find out more.

Work out what features of your current loan you want to keep, and compare the interest rates on similar loans. For example, does your loan have an offset account or redraw facility? If you find a cheaper loan elsewhere that has the features you need, call your current lender and ask them to match their competitor's rate.

Use the mortgage calculator to find out how much your repayments could be with different interest rates.

Find out what rate new customers are getting

Another option is to see what your current lender is offering new customers and ask them why you're not being offered the same deal.

If you've made your repayments on time and have equity in your home, you're in a good position to negotiate better terms.

Consider switching lenders

If your current lender won't come to the party, it might be time to switch to another lender.

Switching home loans could save you money, but make sure the benefits outweigh any fees you'll pay for closing your current loan and applying for another. 

You can use the mortgage switching calculator to compare loans and work out whether you'll save money by switching.

Ask for a key facts sheet

When you find a few loans to compare, ask each lender for a key facts sheet.

Key facts sheets give you the information you need, in a set format, to make it easier for you to shop around. They highlight important information, such as the total amount to be paid back over the life of the loan.

For more tips on what to consider, see switching home loans.

Think about fixing your interest rate

One way to manage risk in an uncertain mortgage market is to fix all or part of your home loan.

Fixing all of your home loan

Fixed home loans have an interest rate that is fixed for a set period of time - often 1, 3 or 5 years. At the end of the fixed rate term, the loan will usually switch to the standard variable rate offered by the lender.

If you need to budget and can't afford much higher rates, then a fixed rate will give you certainty around your repayment amounts, at least in the short term.

However, keep in mind that fixed rate loans often don't allow you to make extra repayments, or these may be capped, or only permitted for a fee.

Fixing some of your home loan 

Another option is to hedge your bets with a part fixed and part variable interest rate loan. Splitting your loan allows you to manage some of the risks of interest rate rises while still being able to make extra repayments.

There's generally no limit to the way you can split the loan. For example, you could split it 50/50 or 20/80 - it's up to you. However, when interest rates are rising, fixed rates are often higher than variable rates, meaning you may pay more.

For more information about the pros and cons of fixing all or some of your loan, see our webpage about fixed vs variable home loans.

Increase your mortgage payments

It doesn't hurt to plan ahead so your mortgage stays on track in the future. A great way to do this is to increase your repayments now, if you can. Paying more now will not only reduce the total amount you owe - meaning you'll be paying less in interest, it will also help prepare you for future interest rate rises.

Better still, if you're able to make higher repayments after negotiating a lower interest rate, you'll be even further ahead.

Beef up your offset account 

Having savings in an offset account is another way to pay less interest. This works by charging interest on your net balance (i.e. your mortgage balance minus the balance in your offset account). This helps you pay less over the life of the loan and pay your loan off faster.

Make fortnightly repayments

If you're currently paying your mortgage monthly, consider making fortnightly repayments instead. By paying half the monthly amount every two weeks you'll make the equivalent of an extra month's repayment each year (as each year has 26 fortnights).

Get help if you're struggling with your mortgage

Don't struggle in silence. If a rate rise means you'll find it difficult to make repayments, talk to your lender as soon as possible to discuss your options. All lenders are required to have hardship programs to help you in tough times.

See problems paying your mortgage for more information to help you get back on track.

Get free financial counselling

If you're unsure what to do, or are having trouble accessing hardship programs with your lender, you can get free, confidential help from a financial counsellor by calling 1800 007 007 or by visiting the National Debt Helpline website.

If you've been affected by an interest rare rise, there are things you can do to keep your mortgage on track. Don't be afraid to negotiate a better deal or contact your lender if you're having trouble making repayments.

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Last updated: 02 Oct 2018