How to handle the latest rate rise

Australia’s major banks lifted variable interest rates in January to their highest levels in over a decade. And the move didn’t follow a rise in the Reserve Bank cash rate, meaning the fifith rate rise in 12 months could soon be on its way.

Rising inflation and the ongoing effects of the global credit crunch spurred on by the US subprime mortgage market leaves rates still in unpredictable territory. So it makes good financial sense to take steps now that will buffer the impact of any subsequent rate rises.

Fixed Rates
If you’ll be squeezed by another rate rise, try fixing all or part of your mortgage. You can pay off the variable amount first, but do factor in any additional costs you may incur.

What about the extras?
Offset and redraw facilities may have sounded like a good idea at the time, but do you use them? You are paying for them so if you’re not, consider looking for a more competitive rate with another lender where you only pay for the services you use.

Extend your loan term?
When money’s tight, lowering your repayments could provide the breathing space you need, which you can do by increasing the number of years you repay the loan over.

Credit Cards
Rate rises also flow on to credit cards, so unless you repay the full amount every month, consider consolidating your debt with a personal loan. Or if you have a decent amount of equity in your home, consolidate your card debt into your lower interest rate home loan, and keep only one credit card with a low limit.

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