Don’t Panic, It’s Only an Interest Rate Increase!
It seems that every time the Reserve Bank lifts official interest rates, the nation’s average blood pressure goes up in tandem! The stress surrounding home loan interest rate increases is due in no small part to the news headlines that always accompany the event:
Rate Increase to Cost Consumers More Than $5 Million
Working Families $50/week Worse Off With Rate Increase
They’re carefully chosen to sell the story, not to represent a balanced view of reality. It’s unsurprising that three quarters of mortgage holders report that they think they would go into default if the official interest rate went up by 1% … a doomsday scenario that is unlikely to ever happen. Next time the papers start to panic about official interest rates, you can stay cool, calm and collected with these strategies for offsetting the stress AND the financial burden of a home loan interest rate increase.
Did That Rate Rise Really Happen?
Although many bank look for any excuse to raise their standard variable home loan rate, passing on an RBA rate increase is not an automatic occurrence. Before you panic, check whether your rate has changed by:
- Calling your bank
- Looking at the internet banking facility for your home loan
- Google-ing for news related to your bank’s name and ‘interest rate’
Switch to a Fixed Rate Loan
With most banks, it is relatively easy to switch from a variable to fixed rate loan. However, you need to keep in mind that:
- There will be a small switching fee, which varies between institutions but may be around $100. NAB has abolished the fee in the past, but may re-institute it.
- Look for a Rate Lock facility with your institution if you think rates will go up soon. This allows you to lock in an advertised rate until the paperwork is completed.
- If you’re planning to sell within the fixed rate term, it may be better to wear that rate increase. It is easier and cheaper to discharge a variable rate mortgage than a fixed rate one.
You should also consider whether you actually want a split rate – where part of your home loan is repaid at a fixed rate, and part of it is repaid at the variable rate.
Know That You Can Go
One of the greatest contributors to stress (and eventually, poor health) is a lack of control over our personal circumstances. Most of us don’t take forced interest rate rises with Zen-like calm, any more than we react calmly when forced to do anything!
So remember that you are always free to leave your home loan lender. The abolition of exit fees may have pushed prices up in other areas of home loans, but it has certainly given you more freedom. If your bank consistently passes on interest rate hikes greater than the official one, or raises your home loan rates without warning, you are always free to find another lender.
Thinking of switching? You can compare home loans at Ratesonline from hundreds of mortgage lenders to find the best interest rate and features to suit you.
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