3 tips on fighting the rising interest rate battles
We're currently living in a world where gas prices are through the roof, you can't get Tylenol anywhere, and interest rates keep going up.
We have to keep fighting it.
Well in this post we're going to give you three tips on how to fight it without a lightsaber.
If you bought a home in the last two years, chances are you went with a variable rate. I mean why wouldn't you? It's basically like free money.
But chances are with these interest rates increasing your payment has either been increasing or your payment has stayed the same and your interest portion is increased until it reaches what we call a trigger point, which is when 100% of your payment goes towards interest. And then the bank comes to you and says, “your monthly payment has gone up significantly.”
There are stories out there of people that, as the interest rates have gone up, their payments have gone up by almost a thousand dollars per month. A thousand dollars per month! That's huge! So huge that we have to start thinking about how in the world do we avoid paying a thousand dollars more than what we had paid before? How do we do it?
So let's get started.
Tip number one: get ahead of it. If you can afford 200 to 300 more per month, and that's in your budget, start putting it towards your mortgage. Call your bank and say, “Hey I'm going to use my prepayment privileges and I'm gonna start applying that to my principal.” What that means is that your principal goes down. Even if it's by 200 per month then your balance will go down and it’ll take you that slightly big longer to hit your trigger rate.
Tip number two: if you've got some money that you've been saving for a rainy day, well guess what, this is your rainy day. See if you can take some of that and put it towards the principal portion of your mortgage, then your balance is lower and your interest is therefore lower and your payment is lower.
Remember that these are short-term solutions.
I guess the long term is easy — change your variable to a fixed rate. But that’s a bad thing to do right now. And the thought process is that you should stick with variable because it tends to fluctuate. It should go down by at least the end of 2023, and so you should be able to capitalize on why you went variable in the first place.
Tip number three: budgeting. And I know what you're thinking, “well duh, Haroon, what do you think I've been doing this whole time?” Okay I hear you. But did you know that a lot of utility providers have on-Peak and off-peak rates? Meaning they charge you different rates depending on the time of day that you use them? So find out if you're on that time of day billing cycle and, if you're not, then get on it. I know people that have saved $200 by just doing their laundry or cleaning their pet Chewbacca during off-peak times. $200 a month! You could take that money and put it towards your principal.