How to withstand the bite of interest rate rises.

How to withstand the bite of interest rate rises.

If you have a mortgage you would be well aware of all the recent interest rate increases which are designed to combat inflation.  Although it is rather a blunt tool it is the only tool that the RBA has available and it is likely to continue using it until inflation comes under control.  So, what can you do to lessen the sting of these interest rate rises that are biting into your financial welfare?  Here are some things to consider.

Develop and revise your budget

If you don’t already have a cash flow budget you should develop one now and if you do have one, now would also be a good time to revise it.  Get some help from your accountant or financial advisor to build a comprehensive cash flow budget that shows all the expected funds coming in and all the monies you expect to flow out on a weekly basis.  Adjust your spending habits, buy less and leave expensive items on the shelf, you can usually find alternatives!  Having a budget will help you to see what is possible, make adjustments as interest rates and costs rise, and show your lender that you are a financially responsible customer.

Look at refinancing your loan

Even if your home loan is relatively recent, it could be worth talking to other lenders to see what they can offer.  However, care must be taken with smaller lenders who may not have the capacity to carry unpaid mortgage payments.  There is usually more safety in dealing with the larger institutions who have a solid reputation to protect.

Consider renting out part or all of your home

If you have a spare room consider renting it out.  There are many online sites that will help you list and manage your room for rent.  If you don’t have a spare room, perhaps you have garage space or some other area that you could rent out.  Alternatively, perhaps you could consider moving in with family temporarily and renting out your entire home.

Take early action to engage with your lender

If you’re struggling with your home loan repayments, there is help available. The earlier you get help, the more options you’ll have.  All lenders have hardship teams.  Talk to your lender to discuss your options. You may be able change the terms of your loan, or temporarily pause or reduce your repayments. This is called a hardship variation.  Your lender may even allow interest only payments for a time if you have enough equity.

Talk to other credit providers and utility suppliers

Talk to your utility providers’ hardship teams about paying electricity, gas, phone or water bills in instalments. Or shop around to see if you can find a better deal.  Never ignore overdue notices.  Most providers would rather make arrangements with you than pursue legal action but once they do it could affect your credit rating for a very long time.

Don’t panic but take action

Getting caught in a worry loop never helps anyone but making careful plans and reaching out for help will help to allay your worst fears.  Lenders really don’t want the trouble of repossessing your home or pursuing legal action.  They would definitely prefer to work with you if you can show them you have genuine intentions and a plan to move forward.

Be aware that the actions you take or don’t take may have a serious effect on your credit rating so get advice early.

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