How to protect your interest rate

For many of us, home loans tend to be a set-and-forget part of our finances. So what do we do if interest rates get a hike out of the blue? Repayments increase, and disposable income or savings take a hit.

Any lender can choose to change their rates at any time for any reason. The good news is there are ways you can protect your interest rate from unexpected rises.

1. Fix all or part of your interest rate

Variable home loan rates are just that: variable. You can choose to fix your interest rate for a period of time to ensure your minimum repayments stay the same. Fixed repayments make it easy for borrowers to budget living expenses and protect their interest rate from going up.

The common issue with fixing interest rates comes when the overall lending market drops standard variable rates, you would still be contracted to that fixed repayment. Heavy fees typically apply if the borrower wants to break a fixed loan contract before the fixed period ends.

If you want to take advantage of variable rate drops, you can also fix part of your home loan in a split loan. Fixing part of your loan means you can benefit from certainty of fixed repayments and still ride the variable rate wave at the same time. Keep an eye on variable rate movements if or when variable rates go up as that portion of your repayments will change accordingly.

2. Refinance to a lender that meets your repayment needs

There are many online lenders that offer far lower interest rates than traditional banks thanks to lower overhead costs. If you’re happy to manage all your finances online and over the phone, an online lender like Reduce Home Loans may suit you.

At the expense of limited branch access, you could get yourself savings of over 1% on your interest rate just by refinancing. In most cases, the refinance costs would be covered by the monthly savings within 6 months of switching lenders.

You can calculate the difference in repayments between rates and lenders on our Mortgage Repayment Calculator.

3. Make use of an offset account

If you have a sizeable chunk of savings kept hidden away, it might pay to offload it into an offset account linked to you home loan. While this doesn’t affect the interest rate per se, it does reduce the dollar amount you are charged interest on.

Find out more about how offset accounts can help you pay less interest on your home loan.

Give our Finance Managers a call on 1300 733 823 to discuss your options when it comes to getting great interest rates online.