How to manage your mortgage in a rising rate environment

By Jessica Darnbrough

With indicators pointing to a number of hikes to the Reserve Bank of Australia’s official cash rate over the months ahead, there’s no doubt many borrowers are concerned about meeting increased mortgage commitments.


While managing mortgage repayments might seem like an uphill battle, the truth is that there are always ways to ease the burden of mortgage commitments. The trick is to get on to it now, rather than waiting until the burden becomes too great.

A clear picture First and foremost, to keep on top of a rate rise you need to get a grip of your household finances – a good household budget is therefore essential.

So how do you create a budget? Start by noting down all expenditures over the course of a month – from mortgage repayments to cups of coffee. With a clear picture of where your money’s going you’ll be far better positioned to see where cutbacks can be made.

Next, establish which expenses are essentials, where savings can be made and how you can find the extra funds to finance increased mortgage repayments. More often than not you’ll be surprised at how easy it is to cut back on expenses without making life uncomfortable.

Arm yourself While you’re tackling your personal finances, allocate a slush fund to keep aside as a buffer against future rate rises and unexpected expenses. With rates likely to continue upwards, it’s wise to plan for the worst-case scenario.

A good rule of thumb is to set aside 20 per cent of your household income to savings. If this just seems impossible then try and aim for 10 per cent. Remember, if you don’t need it in the end, it will make a great little deposit for a new investment property or even a holiday!

Speak to the experts If your budget still looks a little too tight for comfort don’t despair. Talk to your broker or lender as there’s every chance they’ll be able to help find a solution.

There are always options open to you when it comes to meeting repayments, and you’ll find that your lender will be as keen as you are to make sure you meet your commitments.

Some solutions may include moving to an interest-only loan for the period when funds are tight or even renegotiating your loan to a longer term. Moreover, you can always explore the benefits of refinancing – speak with your broker if you’d like more information.

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