How to protect yourself from interest rate rises.

Every home owner who as a mortgage to pay, will probably be concerned at the information being spread in the media about a possible melt down in financial markets. The major concern being a possible increase in interest rates.

In fact, there are some commentators who are predicting that rates in Australia could reach the 17% heights of the 1980s. As crazy as this sounds, and whether it is in fact true at all, it has the potential to cause heartache, worry and possibly some sleepless nights.

The only thing that is certain about the current situation is that it is uncertain. If rates were to rise, even by only at 1% or 2%, this will of course cause a lot of trouble for a lot of people. For many people, it may not necessarily be the actual rate rise in the mortgage market that makes the difference; it will be the impact that will add to the other debts that are common in households, personal loans and credit cards.

I have always maintained that it is the credit card and personal loan debts that cause the major problems for most borrowers. It doesn’t take a genius to know that credit cards and personal loans can cost 2, 3 or even 4 times more than a home loan.

But it doesn’t need to be all doom and gloom. There are certain steps you can take to prevent any further financial pain, and it won’t cost you a cent.

Here is a quick check list of steps that you can take to make life a little easier on the financial front. They may look like just plain old common sense, but many people ignore them. In the current market, they will ignore them at their peril.

• Prepare a household budget. This is possibly the most ignored step in any plan to financial freedom. There are literally dozens of free sites with information showing you how to bring your finances under control. You can also choose from a myriad of commercial applications that take things into a detailed perspective.
• Eliminate all unnecessary expenditure from your budget. This is a natural follow on from the first point, and is a vital step, as you identify which items are necessary, and which are discretionary.
• Call your mortgage broker and organise for your mortgage to convert to a fixed rate. This is probably the most vital and easy step of all. Think about it, if rates are going to rise to 17% in the next two years, what’s stopping you from locking into the next five years now at just under one half of that?

By simply implementing the three steps I have outlined above, you will immunise yourself from any financial plan that may be caused by the current uncertainty in the financial markets. Even if you only implement the third point above and fix your home loan rate for the next three years or more, you’ll be sleeping easy at night.