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
If you've made your repayments on time and have equity in your
home, you're in a good position to negotiate better terms.
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
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
Think about fixing your
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
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
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
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
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
See problems paying your
mortgage for more information to help you get back on
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
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.
Last updated: 02 Oct 2018