What To Do If Interest Rates Increase

Homeowners and those planning to enter the property market for the first time are being warned to prepare for at least one interest rate rise this year.

Damian Smith, RateCity's CEO, said that housing and financial services are among the biggest expenses for most Australians and households could save hundreds of dollars each year by being vigilant with their financial products.

"Housing and financial services like general insurance and other banking products are a growing concern for many households across Australia because of the significant outlay. We're expecting big increases in many car and home insurance policies later this year, so households should take a few hours to compare prices and features online, and potentially save hundreds of dollars."

Many commentators predict that the Reserve Bank of Australia (RBA) will need to lift the cash rate later this year in response to rising inflation. Mr Smith pointed out some strategies for both existing borrowers and potential first home buyers to prepare for this possibility.

"We're in a rate pause at the moment, so if you've got a mortgage, use the time to get ahead of your repayments," said Mr Smith. "If you've got a variable rate mortgage, you should try to increase your repayments - one simple trick is to find out how much per month you'd pay if you had a three-year fixed rate rather than a variable, and voluntarily increase your repayments to this level. You'll pay off your loan sooner, and have a buffer against any rate rise later this year.

"First home buyer activity is at historically low levels, and we think higher repayments because of higher rates compared to 12 months ago is a big part of the cause. If you haven't entered the property market, then use this time to build up the largest possible deposit you can manage.

"You'll not only owe less and be less exposed to any rate rise, but you'll also have access to more home loan products, potentially with lower rates and fees."

Across the board, Mr Smith suggested several simple tips for Australians to save money on financial and insurance products, to offset either rising rates or inflation in other areas.

How to save money in 2011:

* Consolidate your debts - if you have more than one credit card or personal loan for instance, look at consolidating to one account like a balance transfer credit card. Some are offering no interest for up to six months but make sure you pay it off during the honeymoon period otherwise there might not be any point switching because of annual fees and the revert rates after the honeymoon period ends.

* Compare online - use financial comparison websites like RateCity.com.au and switch to a better deal if your accounts don't stack up to what's on the market.

* Renegotiate with your lender - there's no harm in asking for a discount on your rates or fees because the worst they can say is 'no'. Make sure you compare your accounts with what's on the market to use as leverage for negotiating a better deal.

* Curb your spending - review your budget and stick to it. Try to add as much as you can towards paying off your debts, which will limit the impact of rising interest rates and save you on interest.

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