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With the RBA cash rate remaining steady at 2.5% since August 2013, many mortgage holders may now be getting comfortable with their repayments at record low interest rates, but are they getting too comfortable?

With the RBA cash rate remaining steady at 2.5% since August 2013, many mortgage holders may now be getting comfortable with their repayments at record low interest rates, but are they getting too comfortable?

With conflicting predictions about when the RBA will increase the cash rate, it’s hard to be sure when it will actually happen. That’s why it is important to prepare for interest rate rises sooner rather than later.

So do you think you could afford the mortgage repayments if they rise? If you had a $500,000 home loan and the interest rate increased from 5% to 6%, you will pay an extra $314 a month for repayments. So, even though 1% doesn’t sound like much, it does add up.

Take a look at some useful tips below to help you prepare for an interest rate hike:

Compare home loans

Comparing home loan products in the market shouldn’t stop when you have been approved for a home loan. Lenders are always looking for ways to attract new borrowers and you may find that there are more competitive options on the market.

You may also want to keep an eye on the market when interest rates change as some lenders may or may not follow in the footsteps of the RBA.

Create an emergency fund

An emergency fund and a contingency plan can be a life saver if you run into financial strife. If interest rates rise and you are not able to cope with the larger repayments initially, then you can use the funds in your emergency fund to cover the costs until you can create a more suitable budget.

Take a look at your current expenses and find areas where you can cut down or cut out an expense, so that if you are having trouble meeting repayments down the track, you can eliminate extra expenses quickly.

Make larger mortgage repayments

If you are currently making the minimum repayment amount, then an interest rate rise could have a greater effect on you. If you find that you can easily meet repayments with enough surplus cash, you may want to consider putting extra money towards your mortgage. Not only will this help you pay off your home loan faster, but if interest rates do rise, you will already be prepared for the higher repayment amount.

But remember, before making any decisions in regards to your home loan, you should speak with your lender and accountant or financial planner to ensure it is the right decision for you.