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Reducing mortgage pain with climbing interest rates


We urge home loan borrowers to take urgent action to cut costs as mortgage stress rises at alarming levels. Households are facing the threat of super-sized successive rate hikes over the coming months, with ANZ forecasting the cash rate could hit 3.35% by November. The dire prediction from ANZ comes after the Reserve Bank of Australia (RBA) lifted the cash rate to 1.35% earlier this month - its third consecutive increase of the year.


It means borrowers with a modest $500,000 loan could be scrambling to find an extra $970 per month and those with a $1 million loan would need to fork out as much as an extra $1,940!


The other big banks are predicting a cash rate of 2.60% between November 2022 and February 2023, painting a bleak picture for households already struggling to cope with mounting cost-of-living pressures.


Homeowners need to start cutting costs now to prepare for the higher repayments, and we suggest they consult with us.


Rising interest rates should put a lower-cost home mortgage at the top of every one’s list of priorities.


Interest rates are already up by 1.25% this year, with another 0.50% rate rise expected in August. Refinancing with 20% equity from an average variable interest rate of 3.95% to the lowest variable rate available now effectively means immunity from the next 1.35% of the rate rises.


Optimise your offset account


Any money sitting in your savings account could be put to better use in your offset account attached to your home loan.


An 100% offset account is a transaction account that is linked to your home loan.


The account’s balance is ‘offset’ daily against your home loan balance.


This means you’re only charged interest on the difference between the total loan balance and the amount offset.


For example, if you have $20,000 sitting in an offset account linked to your home loan, based on the average variable rate of 4.00%, you could be shaving almost $800 off your interest bill in the first year.


The savings here outweighed the interest you could earn by having the same amounts deposited into the highest-interest-rate savings account in the market today.


Switch to a basic loan


Mortgage holders should also consider switching to a basic cheap home loan.


However, while it could cut the costs of regular repayments, it may also mean doing away with some features in exchange for the savings.


Package loans typically came with benefits such as access to fee waivers for a transaction account, an 100% offset account, credit card with the annual fee waived, discounts on insurance, & etc.


But in return for packaging all the products together, the lender typically charges an annual fee of around $400 - $450.


In some circumstances, opting for the basic loan if you were unlikely to use all of the benefits.


This could initially cut your interest rate by about 1.40 %, not including the saving money on the average annual package loan fee.


Negotiate like a new customer


Existing borrowers often paid a higher rate than what was offered to new customers with the same lender.


Mortgage holders should engage with us to negotiate with their current lenders to make the switch to a new one who lowered your interest rate.


Borrowers taking out a new loan can make significant savings!


Steer clear of interest-only


An interest-only payment is where you only repay the interest on the amount you have borrowed for a set period of time. While it means lower minimum monthly repayments, you would end up paying more in interest over the life of the loan compared to principal-and-interest loans.


Borrowers will be up for larger repayment shock at the end of the interest-only period.


Seek help if you need it


Many families are already struggling to make ends meet amid mounting cost-of-living pressures.


For those whose bills and loan repayments exceeded their income to ask their lender for a financial-hardship arrangement before taking on additional debt. This was an opportunity to negotiate an agreement with your lender to defer or reduce repayments, restructure loans, change repayments to interest only for a set period of time, or waive fees and charges.


Your Choice Mortgage Brokers Pty Ltd ATF Halo Innovation Trust trading as Heart Mortgage Services - Australian Credit Licence 38643.

The information contained herein is of a general nature only and does not constitute advice. You should not act on any information without considering your personal needs, circumstances and objectives. We recommend you obtain professional financial advice specific to your circumstances. The views expressed here are not ours. While the information contained in this article may contain or be based on information obtained from sources believed to be reliable, it may not have been independently verified. Where information contained in this publication contains material provided directly by third parties it is given in good faith and has been derived from sources believed to be accurate at its issue date. To the maximum extent permitted by law: no guarantee, representation or warranty is given that any information or advice in this publication is complete, accurate, up to date or fit for any purpose; and no party or associated entities as mentioned is in any way liable to you (including for negligence) in respect of any reliance upon such information. This article may also contain links to websites operated by third parties who are not related to us. These links are provided for convenience only and do not represent any endorsement or approval by us.

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