The Reserve Bank of Australia announced on Tuesday that interest rates will rise for the eighth straight month, an increase that is expected to be passed onto most borrowers on a variable rate home loan.
The latest rate rise continues a pattern that began in May this year, leading single mum Naomi Bennett to panic about her tightening finances.
“I just didn’t know what I was going to do,” the schoolteacher from Werribee, Victoria, told news.com.au.
“I’ve got three teenage kids and I’m a single mum. The cost of everything is going up more and more every day, and then to be hit with rate rises that don’t seem to be slowing down at all – it’s just really scary.”
At first, the rate increases meant Ms Bennett was paying an extra $100 per month on her mortgage. Then it was $200.
“Now it’s up to around $400 a month,” she says in disbelief. “It’s just such a huge source of stress, and the worst thing is no one knows where it’s going to end. What if we get 18 per cent interest rates like we did in the 80s? What then?”
Ms Bennett isn’t the only one worried.
Dealing with mortgage stress
According to Roy Morgan research, there are an estimated 1.1 million Australians at risk of mortgage stress, the highest number since July 2013.
Mortgage stress – the term given by many economists to a situation in which a household struggles to meet their monthly repayments – generally occurs when mortgage repayments make up over 30 per cent of a household’s income.
After a solid decade of ever-increasing house prices and record low interest rates, many homeowners who have stretched themselves to get into the property market are now finding themselves with growing repayments, putting increased pressure on their budgets.
“I’ve never had to deal with something like this on my own before,” says Ms Bennett, “it’s really destabilising.”
Venting to another single mum friend who had also been struggling, the 51-year-old got a tip that would change her financial situation significantly.
“I was chatting to a friend I knew was in a similar position, just asking her how she was planning to handle the increasing cost of everything, and she said her broker had told her of a number of banks that were offering big sums of cash to switch your mortgage over,” says Ms Bennett.
After making a phone call of her own, Ms Bennett’s new broker found her an offer where she’d receive $4000 cashback for switching her mortgage to the new lender.
“It was like a little gift,” she exclaims, “but on top of the $4000 cashback offer, the rate he managed to secure me was much better than what I’m paying now. We did the sums, and after the break fee my own bank would charge me for leaving, I was still going to be (an estimated) $10,000 better off in the first year.”
Many Australians switching mortgage lenders
Andrew Wheatley, the broker who helped with the switch, says it’s something he is helping several clients with at the moment.
“If you believe that banks give better deals to new clients than their existing ones, then not exploring your options is like throwing money away,” explains the founder of Melbourne-based brokerage firm Wheatley Finance.
“It’s time to stop marrying banks and start dating them. While banks are throwing $4000 to $6000 cash at you to refinance, along with a lower rate, it could be the time to finally put yourself first and take it,” he says.
And while there are no savings guarantees, because of lenders’ eligibility criteria, Mr Wheatley says a mortgage broker can help to work through a range of options to see what could be available.
“If you want to take action but don’t have the time, or find it overwhelming, then contact a mortgage broker who can show you the options, then let you decide on what’s best for you.
“With a broker, they do the paperwork, and technology now means you can pick any mortgage broker in Australia to work with, so you can select the best fit for you.”
Wheatley says of the last 50 successful refinances he has facilitated, the average cashback after costs was $3540, and the average rate reduction was .31 per cent.
“It’s exactly what families need right now, as interest rates and the cost of living crisis continues to put pressure on working Australians.”
In Ms Bennett’s case, while she remains nervous about what interest rates might do in the future, she says the injection of cash and the interest savings she was able to make have allowed her to steel her finances for what may be a rocky few years ahead.
“No one has a crystal ball, no one knows how high rates are going to go or what it might mean, and of course it worries me a lot. I’d like to retire in another 10 years, but I do wonder if the rate rises mean I’m going to have to be working until I’m 80,” she says.
“But this switch has allowed me to plan a bit more. I’ll be putting anything extra straight into my mortgage to get ahead, which I wouldn’t be able to do before. Once the kids leave home, I might look at downsizing as well, which will further ease the stress.”
If you’d like some advice on how to save on your mortgage repayments, it may help to speak to a mortgage broker about refinancing your home loan. Alternatively, comparing a range of home loans online could help.
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