5 ways to survive high interest rate

As interest rates are top of mind with so many investors right now, I thought I would take the opportunity to study what different lenders have to offer, to help you manage recent interest rate increases.

I have come across five strategies that investors can use, to adjust repayments and help manage mortgage/s. First of all, however, it is really important that you check with your lender to see if they offer the following suggestions.

1. Interest only repayments

You may be eligible for five to fifteen years of Interest Only repayments, depending on your lender. This will enable you to reduce your repayment amount and will help to combat the interest rate increases, without you having to find the extra cash for each repayment.

You should check to see if the lender will allow you to switch back to Principal and Interest repayments at any time without penalty. Also, remember that you can usually make additional repayments off the principal during the Interest Only period – but again, check with your lender to ensure there are no penalty fees for this.

My preference is to always have Interest Only loans that allow for extra repayments. This way, I receive the benefit of increased cash flow by using Interest Only terms, but have the flexibility of making additional repayments when it suits me.

2. Reduce repayments to the minimum required amount

If you are making higher repayments than the minimum required, you may wish to reduce your regular payments.

Under these conditions, lenders want your new repayment to be equal to or greater than your monthly repayment amount, at the current interest rate. Depending on which lender you are with, some will allow you the ability to redraw the additional repayments you have made in the past. To take up this option, talk to your lender and request for your repayment to be reduced.

3. Low doc to Full doc

Quiet often, self employed or small business owners use Loc or No Doc loans when purchasing property. This is usually because they are unable to provide the lender with full documentation of financials. The interest rate for these loans can be slightly higher, although there are some lenders who offer really good rates for the self employed.

If you fit into this category and have an existing loan, you may be able to go back to your lender and provide them with full financials – hence you may be eligible for a reduction in your interest rate, because you have provided updated financial information. You will need to check with your lender, as there may be some conditions that need to be met to qualify for the rate reduction.

4. Switch to a fixed rate

Fixed rates offer peace of mind. Most lenders offer a range of fixed rate loans giving you the option of switching from a variable rate loan to a fixed rate loan.

Be mindful that if you fix the rate, you will not be affected by variable rate increases, but you will not be entitled to variable rate decreases during the fixed rate term.

The break costs on fixed rate loans can be very high so you may want to consider fixing for a shorter period of time.

5. Change repayment frequency

Most lenders offer various repayment frequencies, including monthly, twice monthly, fortnightly and weekly repayments. This enables you to make payments at a frequency that suits your income.

Sometimes it is best to have your repayments come straight out of your pay packet, making it easier to manage what is left over.

Check with your lender to discuss these options and find a solution that works best for you.

Until next time…happy investing.

Helen Collier-Kogtevs
Investor and Author