Strategies for investors to overcome interest rises: Part 2
We've covered the importance of the official cash rate (OCR) in the first of our three-part series, and discussed why you need to be prepared for increases to the OCR.
We've covered the importance of the official cash rate (OCR) in the first of our three-part series, and discussed why you need to be prepared for increases to the OCR. After all, the OCR affects lenders' interest rates, which in turn affects your own finances.
Having the right strategies in place to deal with interest rate increases isn't optional - it's mandatory. We've got two more tips to help you with your portfolio and long-term plans for wealth creation.
Tip 2: Consider refinancing
The loan you took out two, three or ten years ago might not be suitable for your current circumstances. When it comes to your investment property, it's important to keep an eye on your repayments, loan features and current interest rate.
When you refinance your loan, you'll need to secure approval from your desired lender. You might be switching loans with your current lender, in which case the paperwork may be more straightforward. Alternatively, you may be ditching your current lender entirely.
You may need to head into a branch, make a phone call or jump online, depending on your chosen lender's specific requirements. And while there are fees for refinancing in some cases, you could save thousands of dollars in interest if you secure a loan with a more favourable interest rate than your current mortgage product.
Tip 3: Opt for a fixed-term loan
If you're refinancing, this tip is particularly important.
Say your existing loan for your investment property is on a variable rate. Should the OCR increase, there's a pretty good chance your interest rate will too. This could detrimentally affect your finances, and if the higher interest rate sticks around, you may struggle to make the repayments.
But you've decided to refinance, and lenders are offering some competitive interest rates. Consider opting for a fixed-rate home loan - you'll lock in the existing rate, but any further OCR increases won't sting you.
Plus, a fixed-rate loan gives you certainty about your ongoing repayments.
In the final part of this series, we'll talk about exit strategies.