Taking advantage of low interest rates

Don't wait to get ahead

Home loan interest rates are low right now but it's likely they won't stay low forever. Here's how to take advantage of interest rates while they are low and tips for how to cope if and when they rise.

How to take advantage of low mortgage interest rates

The saying 'make hay while the sun shines' holds true for dealing with home loan interest rates.

If you make extra repayments while rates are low you will reduce your loan balance, save on interest and build a buffer to minimise the impact of future rate rises.

If you are not sure by how much you might increase your repayments, you could:

  • Increase your repayments as if rates were already 2% higher
  • Round up your repayments to the nearest hundred dollars
  • Just pay what you can afford

Have another look at your budget and see if there are any expenses you could reduce to make extra payments on your loan.

Work out how much your repayments would be if interest rates rose by 2%.

Mortgage calculator

Make more frequent repayments

  • If you are paying your mortgage monthly and you are paid fortnightly, divide your mortgage repayment in two and make repayments every time you get paid.
  • If you are paid monthly, divide the repayment amount by four and make repayments weekly

Not only will this strategy save you interest every time you make a payment, by the end of the year you will have made extra repayments, as there are more than 4 weeks or 2 fortnights in a month.

Case study: Tim and Anna increase their mortgage repayments

couple-on-computerTim and Anna bought their first home 6 months ago. They borrowed $500,000 and their current repayments are $2,904 per month. They are comfortable with the repayments now but worry about how they would cope if interest rates were to rise.

Tim and Anna completed a budget and realised they were wasting a fair bit of money on things like lunches, magazines and eating out. They decided to direct some of this money to their mortgage to build a buffer against future interest rate rises.

As they are both paid fortnightly, Tim and Anna changed to fortnightly loan repayments and increased the amount they pay to $1,600 a fortnight, which still left them some 'fun' money.

These small changes will put an extra $6,752 a year into their mortgage, which will not only build a
buffer but will reduce their interest each month.

Coping with a home loan interest rate rise

If interest rates rise and you're not  prepared, here are some things you can do to keep afloat.

Do or redo your budget

Looking critically at where you spend your money can often shine a light on areas where money is wasted or being spent on things that aren't really important. Think about what luxuries you might be prepared to give up so you can afford your home loan repayments.

Work out where you can save money.

Budget planner

Take on a second job

Finding additional ways to earn money is another way to keep your home. This could be a part-time job or maybe something that would fit into your lifestyle like dog walking or delivering papers or pamphlets.

Rent a room out

If you have a spare room consider taking on a boarder or a student to rent the room.

Sell other assets

Think about what other assets you have that you may be able to do without. For example, if you have two cars, could you make do with one? Selling an asset you can't really afford to maintain will provide an instant boost to your mortgage and may even reduce your expenses.

Move in with family

As difficult as it may be to swallow your pride and admit that you are in trouble, moving back to the family home or sharing with friends or relatives for a year or so might be a good option. Renting out your home might give you some breathing space and allow you to make extra repayments, building a buffer before you return to your home.

Switch your mortgage

If you've been with your current lender for a while, it may be time to consider switching home loans. If there are cheaper loans available that suit your needs, call your current lender to see if they will match another lender's rate. Often the only thing you have to do to get a better deal is ask.

Go 'interest only'

Ask your lender if you could make 'interest-only' payments on your loan for a short while. This will lower 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.

Work out how much your repayments will be before and after the interest-only period. 

Interest-only mortgage calculator

 Increasing your home loan repayments while interest rates are low is a great way to get ahead on your mortgage. If a rate rise does catch you out, take a step back and see what options you have to help you get through.

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Last updated: 11 Sep 2018