In an economic environment where interest rates are rising, many property owners with ongoing home financing face new challenges. Interest rate increases can significantly affect monthly repayments and the total cost of a loan. But what does this mean for you as a borrower, and what strategies are available to manage these changes? This article provides an overview.

1. What Happens When Interest Rates Increase?

Interest rate increases primarily impact those with loans at variable interest rates or whose fixed-interest period is ending and are approaching follow-up financing. For variable-rate loans, interest rates adjust to current market rates, leading to higher monthly payments when rates rise. For loans with an expiring fixed rate, follow-up financing in a higher interest rate environment typically results in higher interest rates as well.

2. Impact on Monthly Payments

An interest rate increase often means higher monthly payments. This can restrict financial flexibility and may require adjustments to the household budget. For households where loan payments already represent a significant portion of income, this can lead to financial strain.

3. Total Loan Costs

In addition to monthly payments, higher interest rates increase the overall cost of financing. Even a small rate increase can lead to significantly higher interest expenses over the life of the loan.

4. Strategies and Options

• Review Fixed-Rate Periods:If your fixed-interest period is about to expire, consider follow-up financing early. You might still benefit from relatively favorable conditions.

• Consider Refinancing:If you have a variable-rate loan or unfavorable follow-up financing conditions, refinancing to a loan with a lower rate or longer fixed period might be a good option.

• Use Extra Payments:If possible, make extra payments to reduce the remaining loan balance and minimize the impact of higher interest rates.

• Build Financial Reserves:Create financial reserves to prepare for rising interest rates. This can provide flexibility and reduce stress.

5. Seek Professional Advice

In uncertain times, professional advice is especially important. A financial advisor can help assess your current situation and develop the best strategy for your home financing.