Don’t wait, take action on rising interest rates today

With nine consecutive cash rate rises since May 2022, interest rates haven’t been this high for over a decade. With many fixed-rate home loan periods ending, a little more spending than usual over the holidays, and the impacts of inflation, it’s no wonder many of us are feeling the squeeze.

The good news is that you don’t have to tackle it alone. A great place to start is to review your debt and loan structures. Your broker is an excellent resource when it comes to creating an action plan to tackle the unique economic conditions. So, what can you do to relieve some of the pressure and create more cash flow? 

1. Refinance 

Refinancing is a great option for suitable loan holders. Your broker may be able to find you a better deal, which could shave hundreds or thousands off of your repayments each month. 

Many lenders will offer discounted rates for new customers as well as cash backs, which can enable you to secure a much more competitive rate and free up cash flow. 

Chat to your broker about whether refinancing will be the right option for you. Keep in mind that the lender will need evidence that you will be able to service the loan, so it’s important that your spending is under control. Your broker will work with you to assess your specific circumstances. 

2. Prepare for fixed rates ending

If you’ve been able to secure a competitive fixed rate in the last couple years, you will need to plan for when the fixed rate period ends. If you don’t act quickly you could be stuck with a much higher variable rate when the fixed interest rate rolls off. 

The best way to avoid a sudden increase in your repayments is to be prepared in advance. Make sure you have a plan in motion with your broker to proactively tackle your fixed rate period ending. This may involve refinancing or shifting your spending. Either way, the key thing is to not be surprised by a sudden increase. 

3. Release equity

In a worst case scenario where you need access to cash quickly to ease cash flow pressures, one option may be to release equity from your properties. Chat to your broker to assess whether this is the right option for you and whether you are eligible. 

4. Interest rate discounts 

Your broker will have an excellent relationship with your lender which can ensure you get the best rate. Often they can reach out to your existing lender to negotiate a better deal without you needing to refinance. Your lender doesn’t want to lose you, so in many cases they will compromise and you will reap the benefits.

5. Restructure investment lending

For investors, now is a great time to revisit the structure of your investment loans. Because interest rates have previously been so low, many investors didn’t opt for interest only loans because they were able to secure a similar rate on a principal and interest loan. This is no longer the case. Many interest only loans will now offer a much more competitive rate. Talk to your broker about which options will be best given your circumstances. 

6. Review bank products

Many banks have restructured their products to cost less per month. For example, ANZ and NAB have a new offset product which is substantially cheaper for the holder. However, many people still have legacy bank products such as a full banking package which is more than what they actually need. Your broker can advise which products are the best fit for you, finding you savings where possible. 

7. Downsize

Downsizing your property and subsequently your loan size is a good way to release cash flow. Talk to your broker about how to secure pre-approval or a bridging loan. 

8. Consolidate debt 

If you have debt on credit cards, personal loans or leases, consolidating that debt into one loan can be an efficient way to bring down your costs. Make sure you are actively working to pay down high interest debt and/or are converting it to lower interest debt. Don’t forget to account for buy now pay later debt such as Afterpay. If you have a lot of debt, freezing buy now pay later accounts may also be a good option to ensure you keep spending under control while cash flow is tight.

Looking for advice on what to do once your fixed rate expires? Chat to the team at Orium Finance today.