In a fixed rate? The secret strategy to prepare for higher interest rates when you exit.

Many home loan customers who took advantage of historically low fixed rates to lock in a 1.89% to 2.29% fixed rate over the last 2 to 3 years, are confronted with a daunting proposition.

For many, when they come out of their fixed rate in the next 12 months, they will exit into a significantly higher interest rate market. What this means is both their home loan rate and their repayments will increase.

While there is some comfort for these home loan customers now, having not experienced any of the last four interest rate rises, there is a reality this will come to an end.

Rather than ignore this fact, there is a key strategy that these home loan customers can do right now to help them when they exit their loan.

If there is any capacity for these home loan customers to voluntarily chose to increase their repayments now while their home loan interest rate is so low, this will create a buffer of funds in their home loan to help in adjusting to higher loan repayments. It could be a small amount, $50 per repayment, or perhaps more. The point being that this buffer that you create can help you to adjust to higher repayments. It will also allow you to get further ahead now while your rate is low, without having to drastically change what you are already doing.

For most fixed home loans, banks allow up to $10k in extra repayments per fixed year. Check with your lender where you stand. Few people actually make anywhere near this level of extra repayments. However, if you can choose to do something now, which won't put you under duress but can be accommodated into daily life now, this will make a difference when these low fixed rates come to an end.

It is important that you receive advice about your own personal situation. Get into action now and ask your broker about what you can do right now, to make life easier in the future. Be smart and use your low rate to your advantage.

This is general advice only and should not be relied upon without consideration of your own personal situation. Please seek advice as to what is appropriate for you.