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Riding the interest rate merry go round.

It may well feel that you are on a merry go round right now, that is not only gaining momentum but seemingly, spinning out of control.

Every month, you receive the same notification. Your home loan interest rate is going up. Your repayments are going to increase to.... Same same, different day.

It can make any sane, rational person feel well, a little unhinged.

Soon you might start to dread opening your email. Because it will be there again. It starts with the Reserve Bank increasing its cash rate and ends with your interest rate.

And so the merry go round continues.

I'm not going to lie to you. Rates have not reached their peak. The Reserve Bank is on a path where it wants to see clear results from it repeatedly increasing the cash rate. Spending must come down it says. Jobs must stabilise. And after all these months (five months going into six) we haven't seen it.

So the merry go round will continue to spin.

So what do you do? When fixed rates are decidedly higher than the variable rate (albeit steading increasing), how do you ride this interest rate merry go round?

It first starts with perspective. And clarity. I'll be honest with you. No one (including me) likes their interest rate going up. Nor do we like paying more for our home loan compared to what we were paying last month. To put it bluntly, we hate it. And it annoys us. It's that constant worry sitting on your shoulder reminding you that it's there. And now it seems to pop up every month to remind you.

Where does the clarity come from? The clarity is for you to be crystal clear what a rate rise means to you. Gone are the days of being able to be vague or unsure. This will cost you. Apathy will cost you.

So I have some questions for you. Are you in getting close to getting in trouble with your repayments? Yes? Speak to your bank or broker. No? Let's move on.

Do you have funds sitting in redraw to reduce your repayments? Yes? Then you do have the option to ask the bank to reduce your home loan by the amount sitting in redraw to pay down your balance and therefore bring down your repayments. If not, let's move on.

Have you asked your current bank for a rate cut? I've had very different feedback from two clients recently. One was a clear 'yes' from their bank straight away as soon as they were asked. One was a unwavering no. There is nothing to be lost by asking the question of your bank - can you reduce my interest rate, I'm not happy. Your broker too may be able to negotiate on your behalf. Ask the question.

Next, how frequently are you making your home loan payments? If you are paying monthly, merely by changing this to fortnightly, you make the equivalent of one extra repayment over the course of the year. When that interest is charged once a month, having money already been paid in the form a repayment reduces your interest charge. Every bit helps.

Your savings. Do you have savings sitting in a seperate bank account? Many clients I speak to have a seperate bank account which, in today's market, is often earning very little. For many they like to have their savings sitting there seperately ,just to keep them seperate. Often it's a comfort thing. Some people use it to manage their money. Did you know however that by transferring these savings to sit directly in your loan account (or your offset) you will reduce the interest you are charged to your loan every month?

And for those who want to keep their savings sepearte, many loans these days enable clients to have multiple offset accounts on the single loan. So you can keep these funds seperate to your everyday funds but sitting in an offset alongside any other offset and your loan. You are killing two birds with one stone. You can achieve the same thing by just doing it differently.

For those customers who haven't recently refinanced, you may well find that there may be an offer from another bank to cushion your jump. It could be a slightly lower rate or cash back. However, key point, there may be little difference between one bank's interest rate and another. in today's market That bank you chase now this month may have a higher interest rate than the another bank next month. What are the sweeteners on offer that can actually make it worth while? They could be there. Let's find out.

So as the world continues to encroach on your and your mental sanity, it is by being clear about what you can do right now that will help. It's going to take action, in many cases, not a significant lot. But it will take you doing something.

At least then as this merry go round spins, you know you have all your ducks lined up in a row to make this ride less wild. Perhaps still uncomfortable but less stress, especially when you know you are doing everything you possible can. Ask your broker to help you.


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