 Clever mortgage tips
With interest rates set to rise next year, homeowners can prepare now to help the financial burden on increased payments.
Strategies vary but the tried and tested one is to see if you can afford to make higher repayments on your loan. Lenders want to see if borrowers could cope with an increase of an extra 2 per cent before approving a loan, and it's an exercise you can try for yourself. If you're currently paying around 5.5 per cent on a loan of say, $300,000, your monthly repayments could rise by as much as $400 if rates hit 7.5 per cent (assuming a typical term of 25 years). If you can start paying the extra now, you'll get a fair idea of how well you'll cope when rate hikes arrive. You'll also put yourself ahead financially as the extra payments will reduce your loan balance.
Using online mortgage calculators is another great way to work out how your repayments will be affected if rate rise.
If you are concerned about higher rates, it is advised that you see a financial counsellor now, rather than wait until later. The Australian Financial Counselling & Credit Reform Association ( www.afccra.org) offer a range of counselling services or you can talk to a mortgage broker.When rates will rise and by how much varies depending upon who you talk to, but most industry experts predict an increase in the official interest rate of 25 basis points by the end of the year, and rates rising from the current 3 per cent to at least 5 per cent by the end of 2010. This means that home loan rates could rise from around 5.75 per cent to near 8 per cent in the same time period.
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