With the Reserve Bank of Australia (RBA) increase your cash rate from 0.5 percentage points to 2.35% – and other increases along the way – many Australians are understandably worried that they will not be able to repay their mortgages.
Up to 65% – or two-thirds – of Australian homeowners are worried they won’t repay their home loan due to the rising cash rate, while almost a third say they are very worried, new data shows. financial services group Australian Shows.
Despite the high anxiety, up to 85% of Australians have taken no action on their home loans and are potentially losing thousands in savings.
In an interview with Yahoo Finance AustraliaAussie Home Loans spokesman Benjamin Slater revealed that while many were worried about cost of living pressures and defaulting on their mortgageonly a handful had taken steps to explore options that could improve their financial situation, such as refinancing.
“One thing that concerns us is that people are paying too much,” Slater said, adding that many mortgage holders were actually worse off financially by not reviewing their home loans.
Aussie research, which was conducted to understand how rising interest rates were affecting Australian mortgage holders, showed that up to 75% of Australians were in fact unsure of the impact of the increase in RBA cash rates on their household budget.
Additionally, one in five (21%) Australian homeowners with a mortgage did not know at what cash rate they would experience “significant mortgage stress”.
The research also showed that almost three in 10 Australian mortgage holders (28%) did not consider the cash rate to rise at all when budgeting for a home loan, although they had to take it into account. in their mortgage appraisals.
Another 38 percent of mortgagers have only budgeted for the impact of a cash rate of 3 percent or less.
Consider refinancing your loan
One of the essential things that most Australians don’t consider is refinancing their loans.
While it might seem counterintuitive to do so with upward rate hikes, Slater pointed out that it’s always best to review your home loan to check its competitiveness by comparing future rates to current rates.
Slater explained that homeowners need to keep an eye on their rates, whether fixed or variable, and approach a broker for a mortgage health check.
“Every two or three years, look to talk to a broker to see what happens,” he said, adding that owners could possibly save up to 1% per year.
Although 1% may not seem like much, it would translate to savings of about $4,000 a year in interest on a $400,000 mortgage.
The Newcastle couple’s move is a no-brainer
Gavin and Laurel, a husband and wife who works as a digital fundraiser and community radio presenter in Newcastle, NSW, shared how refinancing saves them hundreds a month.
The couple, who moved to Australia from New Zealand with their two children, first rented a house in Newcastle seven years ago.
Five years ago, Gavin and Laurel decided to buy the house and refinanced it just when interest rates were rising.
“We approached a mortgage broker who was very helpful and understood our financial goals,” Gavin said. Yahoo Finance Australiarevealing that they were exiting their fixed rate in July.
“He gave us three options…one was a no-brainer and it was going to save us hundreds of dollars every month.”
Gavin explained that despite the rate going up, they managed to get a rate from a new lender that was almost the same as the old rate of 4.2%, but also got a rate below 4% for the variable part, which ended up being a better deal overall compared to the rate of their previous lenderwhich was more than 5 percent.
Home loan health check
Aussie research also indicated that only 14% of mortgage holders had been on the forefront, reviewing their home loans as soon as the first increase in cash rates happened in May of this year.
With that in mind, Aussie suggests several ways Australian households can avoid mortgage stress:
Stop, look and ask – always know what your current rate is and, if it’s fixed, make sure you know when it ends
If you’ve been avoiding financial literacy, now is the time – this is the gateway to managing – or better, avoiding – financial distress
Do some math – be ahead of what you can afford for repayments and how much would put you on the path to financial hardship
Practice a conscious financial approach, paying attention to your complete financial situation
Refinance a home loan with low or no fees
Take advantage of refinance cashback offers
Consider an offset account to reduce the amount you pay in interest on the home loan