Five Ways to Beat an Interest Rate Rise

As the possibility of yet another interest rate rise looms, debt and mortgage specialists Crown Lending say it pays to be prepared.

Crown Lending CEO Scott Parry predicts another interest rate rise would cost the average Australian home owner an extra $50 per month.

"Over the long-term, interest rates always fluctuate, so homeowners should try not to panic," says Parry. "If rates do rise, there are some easy ways you can make some small adjustments to your finances that could potentially reap huge rewards."

If you're worrying about how you would find the extra money to put towards your home loan repayments, here are Parry's top five tips on simple ways to save:

1. Consolidate your loans
If you have a range of debts such as a home loan, personal loan, car repayments, credit card bills, consolidating your loans could save you thousands over a number of years. Debt consolidation involves rolling all of your debts into one loan at one low interest rate, so you only need to worry about making one repayment every month.

"I've seen families actually reduce their monthly debt repayments by up to $800, just by consolidating their various loans," says Parry.

2. Get your income working for YOU
The banks haven't told many people how to get their income working for them on their debt… After all - why would they?

As you probably know banks charge interest daily on your mortgage, so by banking your income into your home loan you will be charged interest daily on a lower amount of debt. So if you have $4000 in income running through your account each month, then the result is that you will be charged interest on a $4000 lower amount. The compound effect of the reduced interest charges will slash years from the term of your loan.

"Banking your income directly into your home loan is the biggest key factor when it comes to reducing your debt quickly," says Parry. "It means your money can work for you, instead of working for the banks."

3. Every bit counts…
Use any extra money from any bonuses, gifts or tax returns to put towards making payments on your loan. Make sure that you let your lender know that you would like to use any extra funds towards the principal of your home loan, rather than make advance payments on your interest.

4. Cut back on your bills
Take shorter showers, have energy and water-saving fittings installed, shop around for a better mobile phone plan or broadband connection… you may be surprised at how even small changes can make a big difference to your bills. With some simple energy-efficient modifications to your home, you could save money and also help the environment by reducing the amount of energy and water you use.

5. Consider refinancing
If the thought of an interest rate rise sends a shiver down your spine, it may be time to explore your refinancing options.

By refinancing your home loan, you may be able to take advantage of lower interest rates by switching from your current lender. You may be able to switch from a variable rate to a fixed rate to protect your finances from future rate rises and budget for the exact amount of your repayments each month or fortnight.

"Regardless of whether interest rates rise, implementing some simple changes can make a big difference to your finances in the long term," says Parry. "The key is to be proactive with your approach to debt, rather than being reactive with emergency measures when interest rate rises occur."