Author: DavidBryde

Managing your loan in a rising rate market

Our Product Manager David Bryde has three tips for managing loan repayments when rates are rising.

The Greater is one of the few mainstream lenders to have not increased variable rates over and above the most recent increase in official rates by the Reserve Bank of Australia last year. Interest rates have been rising which is good news for investors, but difficult for home loan customers on a variable rate.

On a $200,000 loan, each 0.25% rate increase adds approximately $33 per month to your required monthly payment on a 30 year loan term.

Here’s some practical tips on managing repayments when rates rise to minimise the impact on your family budget.

1. Make repayments weekly or fortnightly rather than monthly

By dividing your monthly payment by 4 and paying weekly (or by 2 and paying fortnightly) you’re effectively making one extra monthly payment each year.

2. Pre-empt rate increases and pay more now

The impact higher loan payments will have on your budget can be lessened if you ease yourself into making them rather than deal with the effect all at once.

If you’re confident that rates will increase in future, estimate what you believe they’ll increase to and work out how much extra you’ll be required to pay. We can provide that information to you if you need assistance in calculating it.

3. Make additional one off payments when you can

If you can’t make regular increased payments, you can make a one off payment when you have a windfall like a tax refund or an inheritance, when you sell something, or if you get a bit of overtime at work.

Benefits of extra payments

Paying some or all of your predicted payment increase ahead of the time will benefit you in three ways.

  • Making the additional payments will reduce the interest you pay and help repay your loan faster
  • You can gradually accustom yourself to increased commitments and gauge for yourself whether you’ll need to make any changes to your budget to accommodate increases.
  • You’ll accumulate advance payments that can be used as a buffer in case rates rise by more than you predicted.