Combat rate rises

by John Kolenda, Executive Director Loan Market Group

Homeowners should take steps to minimise the impact of the upward movement in interest rates.

The Reserve Bank of Australia (RBA) increased the official cash rate by 0.25 per cent yesterday, andmany forecasters believe rates will rise up to two per cent over the next 18 months.

There are many steps mortgage holders can take to limit the shock of variable rates returning to their traditional medium level of about 7.8 per cent and home owners should be budgeting for rates to rise again in quick succession, as we’ve seen the RBA do in the past.

While it is tempting to use the reduced home loan commitmentswhile the cash rate is still comparatively lowto boost your spending power, people repaying home loans are better off paying as much as they possibly can now.

This will prepare them for futurerepayment rises and also create a buffer.

Mortgage holders should also be prepared for the major banks moving rates up ahead of an RBA decision because of escalating funding costs, such as the change in fixed rates we saw last week.

It may be beneficial for home owners to have a health check conducted on their mortgage.

A mortgage is no different to your home, your car or even yourself routine maintenance and a regular health check are essential to make sure everything is working effectively.