Mortgage Fixed Rate Ending and Rates Too High? Your Five Quick Tips!

It can be very stressful when your low fixed mortgage rate is coming to an end and you are about to be put on a much higher variable rate.

As you start to work out the impact of the new mortgage repayments on your budget, it can seem like an impossible task to make ends meet.

While you might not have a huge say on what rates are doing, there are definitely things you can control to lessen the impact of rising repayments.

Let's explore some helpful strategies.

Before we dive into solutions, it's important to understand how your mortgage works.

The interest you pay is based on the mortgage balance and your interest rate. It is normally calculated each day and charged to your mortgage once a month.

Reducing the balance, even for a day, reduces the interest on that day.

Do you have an offset or redraw facility linked to your mortgage?

If so, any extra money you park in your offset account (or redraw) directly reduces the daily balance on which you're charged interest.

For example, if you owe $400,000 but have $20,000 in your offset account, you only pay interest on $380,000.

Some people like to keep their emergency fund in their offset so that it reduces their daily balance (while also being on standby if needed). Others park all savings, holiday money and spare cash in their offset until they need it.

Remember, every day the money is in your offset it saves you interest.

If you manage to park enough money in your offset account, it can reduce the total repayments by the same amount as the rate rise is going to push them up; so effectively your repayments don't change.

For example, if the new variable rate is going to push up your repayments by $500 a month, but you also have enough in your offset that saves you $500 a month; then the net effect is $0.

If you are paying any other high-interest debt (like credit cards, store cards, personal loans or buy now pay later), see if you can hit them hard before your mortgage interest rate changes.

Each of these debts has a minimum repayment you have to make each month, so if you manage to pay one or two of them off before your mortgage rate goes up, it frees up money in your budget.

For example, if you have a credit card where you have been paying a minimum of $25 a month, when you pay off the balance you have now freed up $25 (as the debt is repaid so there is no minimum payment required).

Even better, if you can point the freed-up money (the $25 minimum payment from above) at the other debts that will help pay them off more quickly too.

Once you've crushed all of your bad debt, you will no longer have to pay any of the minimum repayments or sky-high interest rates on them.

You can focus on your mortgage and use all the minimum payments from the paid-off debts to help cover your increased mortgage repayments when you switch to variable rates.

Do you know exactly where your money goes each month?

A simple budget is a great way to see where your income is going and help you take control of your finances. It should only take you about five minutes to jot down all your income and take a guess at your expenses.

You can then do two things.

Firstly, do a quick spending review to check your budget is accurate. Review your recent statements and transactions and see where you actually spent your money.

If you find any surprises, update your budget to reflect anything you missed or got wrong.

Secondly, take a proper look at your budget and decide if something has to go, what would you cut out.

List the easiest or most expensive things you could drop in an emergency so you have a plan.

If the numbers don't look too good, you can also consider adding extra income (for example, adding a side hustle).

Every extra dollar you can save or earn can go straight into your offset account towards your mortgage (as covered above).

It's helpful to understand the exact impact of the interest rate rise on your repayments.

Having a concrete number will give you a target to aim for as you look for ways to save or earn more.

You can also work out how much you would need in your offset account to cancel out the impact of the rate rise.

With all the facts at your fingertips, you won't be caught off guard when your repayments increase.

Don't be afraid to talk to your lender.

You might be able to negotiate a better rate if your equity has increased or your credit rating has improved or something else has changed since your last review.

They might also be able to offer advice or suggest options you haven't considered.

It’s also a good idea to shop around and compare rates to make sure you're getting the best deal.

There is no doubt it is stressful when your low fixed rate is going to be switched to a higher variable rate.

Don't leave it until after your rate has increased and your repayments are putting your budget under stress.

As we've seen above, there are steps you can take to put yourself in control and reduce your stress starting today!

Try the MoneyFormula Five Steps to Success today and discover just how easy it is to take control of your money, get the most out of your offset account and crush your mortgage!

MoneyFormula will help you budget smarter, review your spending and help put you in charge of your finances. It will help you calculate the impact of your rate rise and the benefit you will get from your offset account.

It will even help you crush any bad debts and show you how much you will save when "snowball" minimum payments from one debt to the next.

Give MoneyFormula a go today and see what you think.