The RBA have again increased interest rates, putting a strain on everyone’s budget. 

Here are some tips to make the best of interest rate increases.

1. Work on your budget.  Plot out possible shake-ups before rate increases happen. Working on your budget according to present rates and make another budget with rates that are two percent higher than the current rate. If the adjusted budget is not enough for your finances, you know you need to trim down on luxuries.

2. Reduce your borrowing.  Determine how much you can pay while taking into consideration potential rate increases. Once you have worked this out, save as much as you can and transfer dividends and tax return to your home loan account. Keep in mind that there is an interest amount for each dollar that is lent to you so you must save as much as you can.

3. Switch from a standard to a basic home loan. This strategy alone can slash your interest rates by 0.4 percent. Nevertheless, remember that this type of loan does not have the same flexibility options that the standard loan has and that extra repayments might even be penalized.
As much as possible, do not strike honeymoon loan deals for it contains hidden expenses. Refinancing from a honeymoon loan during the term’s initial years might entail high exit fees as well. Also, the standard variable interest rate for a honeymoon loan becomes higher after the allotted honeymoon period which usually lasts from six months to one year.

4.Repaying from the start can help you fight interest rate increases. A $50 extra repayment for a variable home loan worth $100,000 can reduce the term of your loan for a few years. This move also gives you a rebate of thousands of dollars in interest costs. It is best to start extra repayments at the start of the loan instead of making your budget sustain rate hikes for extra repayments can offset the loan’s principal amount and raise the equity of our property.
You can also lessen the effect of interest rate hikes by paying up-front charges like loan establishment fees, legal costs and valuation fees immediately. If you are saving for deposit, you can have a separate account that will answer the expenses of these up-front fees.

5. Consider a fixed rate.  Fixed home loan to have stable repayments that can negate the effect of interest rate hikes. Even if you are already late in fixing your loan, you can have a portion of your loan transformed into a fixed home loan. Doing this will give you a fixed repayment amount despite changes in the interest rate.

6. Consolidate your debt into one account to avoid multiple interest rate increases from each of your debts. Consolidating your debt will give you a lower interest rate as compared to paying separate 15 percent interest rate increases from your car loan and credit card bill.

7. Transferring into a fortnightly repayment is also a great deal in paying your term faster. Shifting into this repayment option gives you more chances in trimming the principal amount of the loan which in return trims its interest rate. Shifting into a fortnightly repayment can also add equity to your property.
And last but not the least; you must make the redraw facility work to your favor. In periods of low interest rates, you must give loose amounts from your salary to your loan account. This will give you a buffer against rate hikes. Also, you can redraw whatever extra amount that you contributed in times of need.