Making the most of a low interest rate environment
Monday, 22 June 2015
Interest rates are at a record low, which is great for homeowners with a variable rate. But how can you take full advantage of this unique interest rate climate?
1. Keep your home loan repayments the same. While it is tempting to reduce your loan repayments when interest rates fall, keeping your repayments at the same level will pay down your debt quicker and save you thousands in interest payments over the long-term.
2. Take the opportunity to build equity by making additional home loan repayments. If your personal circumstances allow for it, a small increase like rounding up to the nearest hundred dollars means you will get ahead on your home loan and allow you to build equity faster.
3. Be prepared for a rise in interest rates. Interest rates won’t stay low forever, so it is important that you plan for when they start to rise again. Factoring in a “rate buffer” of about two per cent to your repayments will mean that any sharp rises in interest rates won’t severely impact on you.
4. Consider undertaking projects that increase the value of your home. If you’ve been thinking about undertaking home renovations, now may be a good time to borrow the additional funds to make it happen. The extra repayments are likely to be more manageable, and you're likely to increase the value of your property.
5. Avoid the temptation to over-commit. A low interest rate environment brings with it the temptation to borrow a greater amount, but try to avoid taking on debt just because you can. Eventually rates will rise and if you have over-committed, you may find it difficult to meet repayments.
6. Seek out good advice. Avoid the temptation to choose a home loan just because it has a low interest rate. It may not be the most suitable for your circumstances and could cost you in the long-run. There are many different types of home loans available designed for different situations, so seek out good advice to choose a loan that’s best for you.
7. Use any savings you make on home loan repayments to pay down other debts. Take advantage of lower home loan repayments by using the extra money to pay-down other debts, such as personal loans or credit cards.
8. Weigh-up whether a fixed or variable rate is best for your situation. While a variable rate generally means a lower interest rate, a fixed interest rate can offer certainty of repayments for a set period. With interest rates at a low-point, it is a good time to review the option best for your circumstances.