Not interested in Interest? You should be

That's great news if you earn interest from savings. But what do rising interest rates mean if you have a home loan or other debt? If the interest rate isn't fixed, you may be paying more. The challenge is to work out exactly how much and then reduce its impact.

Your plan should include:

· working out how much extra you'll pay in interest
· revising your budget to cancel out the increased cost of interest
· comparing interest rates across banks to get the best deal
· regularly reviewing your mortgage.

Biggest impact for floating rate loans
Rising interest rates will affect you most quickly if you have a floating rate home loan because interest is charged at the daily rate. If you can afford it, increase your repayments to cancel out the additional interest costs.

Revise your budget
Revise your budget to squeeze any remaining money from your pay packet to wipe out the increased cost of interest. There are two types of budgeting styles:

1. Nip and tuck - fill in your budget so you can see where all your money is going. Then see if you can nip some spending to tuck in some savings elsewhere.
2. Cold turkey - decide how much of your income you will pay towards your mortgage. All of your other expenses including electricity, food and entertainment, will come out of the remaining portion. (Tip: make sure you can realistically live on the remaining portion).

Is your home loan up for renewal?
You'll also feel the squeeze if your fixed rate loan is due for renewal because fixed rates are higher now than they were six, 12 or 24 months ago. It's prudent to compare interest rates across banks to get the best deal. If you have a 25 year mortgage for $250,000 at 8% interest then, as noted above, your minimum fortnightly repayments will be $890. If the interest rate moves up to 9.5% at the end of the year, you'll need to start repaying $1,005 a fortnight to pay it off in the same amount of time - that's $115 extra a fortnight.

Remember two things - first, your current lender probably wants to keep your business, especially if you are a good customer and so may be prepared to cut a deal with you. Secondly, if you decide to move lender, you will be up for legal and, possibly, valuation costs to set up the replacement loan. Your current lender knows that and may count on your unwillingness to incur those costs (and your inertia!).

Review your mortgage
Regardless of whether interest rates are on their way up or down, it pays to regularly review your mortgage. Making small changes to your repayments can save thousands of dollars.

For example, using our $250,000 mortgage at 8%, making fortnightly repayments of $890 rather than monthly repayments of $1,780, can save you over $103,000 in interest alone by the time you have paid off your mortgage. That small monthly difference is the difference between a 25 year loan and a 16 year loan - that's the mortgage paid off nine years earlier!

Use Sorted's mortgage calculators
Check out Sorted's independent comprehensive mortgage calculators. These calculators are unique and set a new standard of mortgage calculators in New Zealand. They help you:
· See how much money you can save on interest by increasing your regular repayments by even a small amount
· Set goals within your mortgage so you'll be mortgage free sooner
· Compare mortgage deals from competing banks
· Work out how to arrange your mortgage so you pay the least interest
· Calculate the total cost of your mortgage by the time it's paid off
· Work out how much you'll pay in interest over the life of your mortgage.

To find out more about how you can make your mortgage work for you visit www.sorted.org.nz. Sorted is packed with powerful calculators and comprehensive information to help you get your finances sorted.