Interest rates have been on the rise lately, and if you’ve followed the predictions of leading economists, you’d be aware more increases are expected in the coming months. This can be worrisome for homeowners with a mortgage, as even a small rate increase can add hundreds of dollars to your monthly payments. With the softening of house prices in many locations, people are also worried about changes to the equity in their homes. It’s certainly making for interesting and challenging times in the finance sector.
If you’re feeling anxious about how rising interest rates might affect your mortgage payments or home equity, you certainly aren’t alone, and here are five tips to help you cope:
1. Review your budget and make adjustments
The first step is to take a look at your current budget and see where you can make some adjustments. If you have any discretionary spending, now is the time to cut back. You may also need to make some changes to your regular bills and payments. For example, if you have a variable-rate mortgage, your payments will increase as interest rates rise. You may be able to offset some of this by making bi-weekly mortgage payments instead of monthly payments. This will reduce the amount of interest you pay over the life of your mortgage.
2. Refinance to a fixed-rate mortgage
If you have a variable-rate mortgage, now might be a good time to consider refinancing to a fixed-rate mortgage. With a fixed-rate mortgage, your payments will remain the same, no matter how high interest rates go. This can provide some peace of mind, especially if you’re on a tight budget.
3. Make extra payments when possible
If you have some extra cash on hand, consider making larger than usual mortgage payments or even making lump-sum payments when possible. This will reduce the principal amount of your loan and save you money in interest charges over the life of your mortgage. Even an extra $50 or $100 per month can make a big difference over the life of your loan. You can always make smaller payments again if necessary, but by paying more now, you’ll reduce your overall interest costs and create a buffer for yourself.
4. Invest in a home equity line of credit
If you’re worried about changes to your home equity, consider investing in a home equity line of credit. This will give you access to cash when needed, and you only have to pay interest on the amount you borrow. This can be a great way to access cash if you need it without having to take out a new loan.
5. Stay informed and stay calm
Finally, the best way to cope with rising interest rates is to stay informed and remain calm. Keep track of the latest news and predictions from leading economists, and make sure you understand how changes in interest rates might affect your personal finances. It’s also important to remember that interest rates are just one factor in the housing market, and many other factors can affect home prices. So, don’t panic if you see a slight decrease in your home’s value. In the long run, it will likely go up again as these things are cyclical.
At the end of the day, it’s important to remember that rates are still relatively low by historical standards, and as long as you stay disciplined with your finances, you should be able to weather any bumps in the road without too much trouble. By following these five simple tips, you should be able to absorb increases and protect yourself from financial hardship down the road. Of course, this is generalised information, and your circumstances may need individual consideration, if so call me today about a strategy that makes the most sense for you and your situation.