In anticipation of ongoing interest rate hikes, which are expected to continue for the next few months and potentially peak in May, it is crucial to pay attention to your spending habits and consider how you will manage higher mortgage repayments. Despite this, many individuals who are still benefiting from low interest rates and consequently lower mortgage payments are continuing to maintain their current lifestyles without making any adjustments. This includes spending money on outings, dinners, parties, and indulging in travel plans. In fact, there has been a significant increase in the number of people flocking to airports, eagerly embarking on long-awaited vacations. In November of last year, overseas departures soared by 162,610 trips, reaching a total of nearly 1.2 million travelers for that month alone.
If your mortgage repayments are projected to double or triple this year, it is crucial to take proactive measures well in advance. The end of the year will arrive sooner than you think, so it is essential to be proactive and take responsibility for your spending habits. This alone can help mitigate rising inflation and potentially halt the continued increase in interest rates.
Why are your spending habits significant?
They directly influence your borrowing capacity and whether you will be able to refinance your loan. If you are on a fixed interest rate, the first step is to determine your loan’s expiry date. It is advisable to seek guidance from a finance specialist, such as ourselves, as early as possible to schedule a consultation.
We, as finance specialists, are better positioned than your lender to assist you in managing the transition when your fixed term loan expires. We have access to a wide range of finance products and a comprehensive understanding of current incentives designed to encourage borrowers to switch lenders.
When your fixed term expires, there are several options we can discuss, including:
- Do nothing: Assess whether continuing with the variable rate loan offered by your current lender is the best option.
- Fix your loan for another fixed term period.
- Refinance your loan with another lender if more suitable options are available.
- Split your loan between fixed and variable components with your existing or new lender.
As your mortgage specialist, we can conduct an interest rate check on your behalf and help you compare other options available with your current lender. Alternatively, we can explore potential refinancing options with competitive lenders’ rates. It’s important to note that there is no one-size-fits-all approach for homeowners nearing the end of a fixed term. It is crucial to understand the advantages and disadvantages of each option.
Option 1: Do nothing – Stay with the variable rate on your current loan While this may be the easiest option, it is likely to be the most expensive. Despite any initial enticements, such as special introductory rates, interest rates have increased significantly over the past year. Seeking guidance from your mortgage specialist about offers from other lenders that may be more competitive is a wise choice. In the current environment of rising interest rates, planning and budgeting for higher monthly repayments well in advance, and exploring other available rates in the market, can help navigate the interest rate increases.
Option 2: Re-fix – Take out another fixed interest loan If you desire certainty regarding your monthly repayments and want to avoid concerns about rising interest rates, you may consider locking in another fixed term for several years. However, it is important to note that the era of very low fixed rates may be coming to an end, and it’s necessary to explore competitive deals that are still available. While opting for another fixed term will safeguard you from further interest rate rises, it may leave you without flexibility compared to other loan options that offer features like offset accounts, redraw facilities, and fee-free extra payments. Additionally, cancelling a fixed loan for reasons such as selling or refinancing your home may incur significant break costs. It is recommended to seek guidance from your mortgage specialist before finalizing another fixed term.
Option 3: Refinance – Consider refinancing your loan with another lender Well in advance of your fixed rate loan’s expiration, we offer a loan health check to compare your current loan with offerings from other lenders in the wider market. Our role is to help you find a finance offer that suits your needs and present the advantages and disadvantages of cashback incentives. Our main focus is ensuring that if you choose to refinance, you recover the associated costs. It is essential to evaluate whether accepting a higher interest rate solely to take advantage of a cashback offer makes good financial sense.
Many lenders are currently making competitive offers to attract new customers, but it’s important to analyze whether these offers ultimately result in real savings. Additionally, changes in your personal circumstances since you initially took out your fixed interest loan may affect the amount you can borrow. It is crucial to consider these factors.
Option 4: Have your cake and eat it too! – Split your loan between fixed and variable components Did you know that you can have a combination of a fixed rate and a variable rate loan? Most lenders that offer this type of loan allow you to choose the proportions of each component. For example, you may opt for a split of 40% fixed and 60% variable. This approach provides repayment certainty for the fixed portion while allowing some flexibility with the variable portion. In the event that variable rates rise, the fixed portion of your loan remains unaffected. However, if rates fall, the fixed portion will be more expensive than the variable portion, offsetting any anticipated savings. It’s worth noting that split loans may not be available with every loan or lender, which may limit your choices. If you are undecided between fixing or refinancing your loan or seek a combination of flexibility and certainty, splitting your loan may be a suitable option.
It’s important to consider the possibility that you may not be able to refinance or change lenders due to certain circumstances. Not all mortgage holders have the capacity to switch to another lender, and in such cases, staying with your current lender may be the best option for the time being. It’s advisable not to risk your credit score by shopping around without professional guidance. Allow us to conduct thorough research on your finance options. If there is an appropriate and alternate solution available, we will find it. However, if it is in your best interest to stay where you are for now, we will provide you with that advice.
As always, it is crucial to discuss all your options with us, as we are industry specialists dedicated to helping you make informed decisions. This may be one of the most significant decisions you need to make this year, so you don’t have to do it alone.