A volley of interest rate rises has spooked home owners around the country with the threat of rising mortgage repayments looming large.
The reality is that as many as 40% of Australian borrowers signed up for fixed interest rate home loans in 2020 when rates were at all-time lows.
It was great at the time. But now many of those loans are due to expire, exposing borrowers to the potential nightmare of seeing their monthly mortgage repayments go through the roof overnight.
If borrowers do nothing, they face an expensive problem.
Firstly, when the loan reaches its fixed rate expiry date, it may automatically revert to a standard variable rate but this rate is often significantly higher – costing potentially thousands of dollars until they go to market to explore options from other lenders, or re-negotiate a reduced rate with their current lender.
If your fixed rate expiry date is approaching, it’s wise to compare loan options as soon as possible.
This is because rising interest rates, coupled with falling house prices may actually combine to push your LVR (loan-to-value ratio) to the point where you may no longer have the option to refinance.
According to recent media reports, homeowners around the country have seen their properties fall by an average 7.2% from their peak, with Sydney suffering the biggest slide of 13.8%.
That is why it is important to act now.
Doing the numbers: Refinancing to save on mortgage repayments
Some simple sums illustrate just how much money can be saved by refinancing.
Max and Suzie took out a $600,000 loan in 2020, fixed at 2% for three years. The loan expires in May of this year. Their monthly mortgage repayments on this loan are around $2200.
If they don’t seek a new loan option or no longer have the borrowing capacity to refinance, their loan will revert to the variable rate which presently sits at around 6.5 to 7%.
That will double their monthly repayments up to around $4000 per month pushing them closer to the ‘mortgage cliff’ when they can no longer pay their mortgage.
But if they are able to refinance now, they may still be able to secure a much more attractive rate of around 5.25%.
Many lenders may also throw in cash back offers of up to $4000 to sign up. The monthly repayments on their new fixed loan will then be $3300. It will save them around $600 to $800 per month or up to $9600 a year.
A $9600 per year saving is like getting a pay rise of $13,700! When did the boss last offer you one of those?
These figures are based on the current standard variable interest rate.
Additional interest rate rises could create even greater savings for those who refinance. They may also impact the ability of those who want to refinance but don’t act quickly enough.
Interest rates – when will our mortgage repayments get a reprieve?
No-one knows exactly where the interest rate spikes will end. But we can say with near certainty that there are more rises to come.
That’s because Reserve Bank of Australia Governor Philip Lowe has already told us.
The RBA lifted the cash rate in March to 3.6% – higher than it’s been in more than a decade. It was the tenth consecutive rise and pushed many people closer to that ‘mortgage cliff’.
But Lowe didn’t hide the fact that more rises are on their way.
“Further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target,” he said.
Most banks think there will be two more increases, but the NAB is predicting three that would take the cash rate to 4.1%.
The time to refinance is now
Were you among the many Australians who fixed their home loan in 2020?
If so, your days of being shielded from higher interest rates may soon end. But you can still take positive action to minimise the pain.
By refinancing now, you could significantly reduce your mortgage repayments and put thousands of dollars a year back in your pocket.
Don’t sit on your hands and do nothing or make the mistake of thinking it isn’t ‘worth the trouble’.
You could beat the system and may not have to compromise your lifestyle by refinancing with a brand new home loan.
With the finance architects at KnowHow Property at your side, you could save hundreds of dollars a month and keep living your home-made dream.
These may be many benefits to refinancing with KnowHow Property:
- Better mortgage rates
- Lower monthly repayments
- Shorter loan terms
- Consolidate debt
- Fixed-rate options
- Easy and fast process
Talk with KnowHow Property today
You wouldn’t pay thousands more than you had to for a new car – so why do it on your home loan?
It makes sound economic sense to review and potentially refinance your fixed home loan as it approaches expiry.
It’s one of the best ways of saving money and shielding you and your family from the impact of rising interest rates.
It can literally save you thousands of dollars a year as well as significantly reduce the term of your loan.
Find out more about how to overcome your mortgage cliff.
Want to know how much money you could save, in just 15 minutes? Contact us for a no obligation discussion about your options.
This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice. You should always seek professional advice in relation to your individual circumstances. Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.