Interest rate hikes: 10 ways to keep your repayments down


Interest rates have begun to rise, but that doesn't mean you have no control over the size of your repayments.

There are plenty of ways to keep your repayments down - both now and for the future. The trick is to keep tabs on where your money goes and ensure you're getting the best possible deal for you and your family.

Here are 10 things to consider.

mortgage payments interest rate hikes

1. Don't panic

Even with the rises in May and June, interest rates are still at historically low levels, so your repayments won't increase by mu

By panicking and making rash decisions, you could inadvertently lock yourself into something that costs you more, not less.

Keep a level head and do your homework before making any changes.

2. Pay more now

With rates historically low, there's still an opportunity to pay a bit more now and get ahead on your loan.

Not only will you be more accustomed to paying more as rates rise, but also chipped away more of the principal, reducing your future repayments.

If your loan doesn't allow extra repayments, then the next point could be for you.

3. Review your loans

Chances are you haven't reviewed your loans for some time, if ever. Now is a great time to do exactly that.

Mortgages brokers and comparison websites can help you see what you could be paying elsewhere. How do those numbers look against your current rate?

Even if you're getting a good deal, it pays to ask your current lender to do better - most will discount your rate to keep you as a customer. But you don't get if you don't ask!

4. Get an offset account

If your mortgage doesn't already have an offset account, it may be worth getting one.

Your income gets paid into the offset account and sits against your mortgage, reducing the total amount you owe - and in turn, how much interest you pay.

5. Interest-only is a last resort

Don't be tempted to switch your home loan to interest-only to save a few dollars unless you're absolutely desperate.

Sure, interest-only reduces your repayments in the short-term. But because you're not paying anything off the principal amount, it doesn't get any smaller. The result? You pay far more interest over the life of the loan.

This should only be an option of last resort to avoid losing your home.

6. Consider consolidating

Home loans typically have much lower interest rates than other debts - many mortgages nowadays are in the 2% range; credit cards can be 10 times that figure.

You may be able to reduce your total repayments by consolidating more expensive debts into your mortgage.

Plus, it's easier to keep track of one large debt than multiple smaller ones.

7. Avoid new debts

Keeping a lid on repayments also involves not accruing new debts wherever possible.

Credit cards and buy now, pay later schemes are easy to sign up to. However, if you don't make repayments on time, the interest you're charged will hurt.

If you're not good at making repayments on time, consider using debit cards or cash - they won't accrue interest and stop you spending what you don't have.

8. Get saving

Rising interest rates applies to savings as well as debts, meaning returns on savings accounts, term deposits etc should get more attractive.

While banks hoover up more in interest repayments, you can return the favour and boost your savings - then use those savings to reduce your future borrowing.

9. Use your tax refund

Most of us receive a tax refund each year for tax we've overpaid and relevant deductions we've claim.

With tax time coming round again, if you can resist the urge to splurge, you'll reduce your repayments by using that cash to pay off more of your loan.

10. Cash in rewards

If you're like me, you probably used credit card and loyalty points towards travel and family holidays pre-COVID. So those points may have gone unused over the past two years.

Why not cash in those points and put them to good use.

Some credit card rewards let you redeem cold hard cash - which you could use for loan repayments.

However, you may get better value by taking them as store vouchers to buy everyday goods, freeing up your money to meet your repayments.

Either way, you're effectively using the bank's money to pay off your loan - and what's not to love about that!

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Helen Baker is an Australian financial adviser and founder of On Your Own Two Feet. She is the author of On Your Own Two Feet: Steady steps to women's financial independence and On Your Own Two Feet Divorce: Your survive and thrive financial guide. Helen holds a Bachelor of Commerce (Accounting) degree, a Master of Financial Planning, and a Master of Management (Innovation and Change).