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5 Ways to respond to rising interest rates

As you know, interest rates are rising. The Reserve Bank has already made two increases to the cash rate, with more almost certain to follow. As a result, home loan rates will also rise.

So what should you do in response? Here are five suggestions:

1. Don’t panic. Your lender wouldn’t have approved your mortgage unless it was convinced you could cope with a series of rate rises. So unless your financial position has deteriorated since then, you should be able to cope with higher repayments.

2. Get ahead of any problems. If you think you might struggle to keep making your repayments, contact your lender now to discuss your options. It’s important you make contact before you miss a repayment, not after, because the more warning you give your lender, the more flexible they’re likely to be.

3. Budget for rate rises. Assume your mortgage rate will rise by 2 percentage points. Calculate what your new monthly repayment would be and start paying it now. You can put the extra money into an offset account, a redraw facility or a special savings account.

4. Improve your savings rate. Look for ways to increase your income and reduce your expenses.

5. Switch to a better loan. The home loan market is intensely competitive, which is why lenders often charge new borrowers lower interest rates than loyal customers. So you could make big savings by refinancing to a lender offering a comparable loan at a lower rate.

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