On to the horizon – maybe distant but still distinct – has crept interest rate rises. While Reserve Bank governor Michele Bullock is calling the inflation spike temporary and suggesting it may naturally drop back to within the target band of 2-3 per cent, there is a chance it won’t.

And this, after mortgage holders have had only three of the many relief cuts we were once expecting. So, how prepared are you for a fresh interest rate threat? This is my safety checklist, because preparing for rising interest rates sometimes means you can avoid them entirely.

Check 1: Have you left your home loan repayments the same? I know this is about as appealing as a root canal, but falling interest rates are a gift for a mortgage-holder – they mean you instantly slash your interest bill and time in debt – if you keep your repayments the same.

Yes, that’s a tough ask with the cost of living squeezing us all hard. But let’s say you have a pretty typical $600,000 mortgage and today pay the advertised average variable interest rate of 6.13 per cent.

At the start of the year, that would have been more like 6.88 per cent. Your mandatory repayments have fallen from $4195 to $3914. It will – of course – take three hikes before they are back at that level.

Consider, if you at all can, upping them in advance, with the excess going to where you should always put house overpayments: into an offset account attached to your mortgage. This way they are not subsumed into the mortgage, making you reliant on redraw, but there for you as a bit of a war chest if rates go higher later.

Check 2: Are you paying no more than 5.2 per cent on your home loan? That 6.13 per cent I mentioned? The real opportunity is to ditch it.

But first let me explain that I will only ever provide you with the interest rates of products with a real offset account, which means interest rates from what are called authorised deposit-taking institutions.

We could see (and have seen) the many fake offsets catch out consumers – and the federal government’s Financial Claims Scheme does not apply to these. But instead of paying 6.13 per cent for a high-quality home loan product, you could be paying just 5.2 per cent (give it a quick google – there are several options).

Let’s run your possible numbers on a $600,000 home loan again, assuming this time you’ve already dropped your repayments for 2025’s rate reductions and there’s no way you could up them again.

You’re now paying that mandatory $3914 a month but, with a refinance to 5.2 per cent, would slash this by even more to $3578. This time, however, maybe it’s realistic to “save what you save” into an attached offset account to build that interest rate emergency fund.

I call this strategy “up stumps but still stump up”. And guess what? If rates (mercifully for mortgage holders) don’t rise, but simply stay the same for the rest of your loan, this “offset stash” approach would get you out of debt $186,014 cheaper, and more than four years earlier.

Check 3: Should you fix your rate? In my opinion, virtually never. In part, this is because you can’t pay extra on fixed rate loans, and offset accounts don’t usually offset at a dollar-for-dollar rate or at the full home loan interest rate.

The reason is that signing up to a fixed-rate deal is a commitment to pay a lender “x” amount of interest. Which is why, if you leave early, the break penalties are huge. But there are two conditions under which I would consider a fixed rate:

• If interest rates are expected to fall, which they kind of still are (and the opposite fixed-rate product, term deposits, still bear the pathetic-paying legacy of that).
• If you can get a rate near or below what you are paying now on variable. You might now be able to find something that fulfils this second condition.

But only ever fix half your mortgage. Particularly now, when you never know which direction interest rates might go – a fix should only ever be a hedge, not a bet against the bank.

In any case, there’s no time to lose to undertake my mortgage safety check and ensure you are not soon handing over extra interest again.

Nicole Pedersen-McKinnon is author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, X and Instagram.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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