No time like the present to scratch your itch

With interest rates still incredibly low and 2022 a very new year as yet, there’s no better time to start from scratch – and by scratch, we mean those itching to get into the market but who have continually held back.

You may have great reasons for this hesitation, not the least of which are the difficulties that a global pandemic has wrought on your everyday life.

But to quote some of our own favourite words, why not “be confident and go forth”  this year?

Should I wait to buy?

As we mentioned earlier, the Reserve Bank of Australia (RBA)’s record low cash rate of 0.1% is now into its 15th consecutive month with effectively no increase in sight.

However, there’s been plenty of rumours about when this will occur and some bank lenders are already accelerating their fixed interest rates in preparation for this moment.

But bear in mind that even if the RBA raises the cash rate in March, the change won’t change property prices or affect mortgage loans overnight.

In answer to this month’s RBA cash rate announcement, CoreLogic research director Tim Lawless said a strengthening economy, tightening labour market and open international borders could offset a significant downturn in the property market as the result of a cash rate increase.

However, few industry experts believe an increased cash rate will not affect the property market in any way, with many now planning for a triple rate hike in this year alone.

Fool’s gold

Bottom line: your hard-earned cash is worth more in the property market right now than it will be when interest rates rise – and they will rise at some point.

There’ll be a downturn in buyers but you’ll also be able to borrow less – and buy less – than you would now.

So, get in ASAP and make your money work for you while the going’s still good!

And don’t forget….

As we mentioned last week, there are ways to beat the frenzied crowd to a great affordable home.

First-home buyers can also pick up a one-off First Home Owner Grant (FHOG).

While not every state offers FHOGs, many do, or they provide similar exemptions, reductions or concessions such as not needing to pay stamp duty, so this is an option worth considering.

Where to now?

We’ve given you a lot of things to think about, so feel free to scratch your head and ponder where all this information leaves you, as a first-home buyer.

For starters, another RBA cash rate announcement is due on Tuesday afternoon so make a note of that date.

But whether you’re planning to buy, or already hold a mortgage loan, we’re here to make your property journey an easy one.

Lending Loop can give you competitive rates from more than 40 of Australia’s biggest banks and specialist lenders, help you refinance or find an investment possibility and basically, hold your hand throughout the entire property process.

We have plenty more great loan advice and tips to give you as well so give us a call today at Lending Loop.

Regional property continues country mile growth

The city to country COVID migration and its ensuing hike in regional property values is continuing to hold sway in 2022 but take heart!

There’s a good chance this growth may settle soon.

CoreLogic’s quarterly Regional Market Update released on Monday confirmed Australia’s 25 largest non-capital city regions were continuing to enjoy extraordinary growth.

Twenty-four of these regions’ houses can boast an annual double-digit growth while 18 regions have experienced gains of over 20%.

And that’s not all.

Australia’s combined regional areas’ median dwelling values trumped that of its capital cities counterpart, skyrocketing 26.1% in the year to January 2022 compared to the latter’s 21.3% figure.

Why are regional properties still outperforming the city?

CoreLogic’s head of research Eliza Owen admitted last year was a highly unusual one when it came to the standard pattern performance between capital cities and regions.

“It’s common for these two markets to roughly perform in line with each other,” she said.

“But what was unique about the end of last year was that this pattern changed.

“Regional price growth instead accelerated toward the end of the year, while capital city dwelling price growth continued to slow.”

Should I still buy or sell a regional property? 

Both regional and suburban property growth has soared in the past two years with residential property prices overall jumping 21.7% in the 12 months to September 2021, according to the Australian Bureau of Statistics (ABS)’ Residential Property Price Indexes report.

This is the strongest annual growth recorded since this series commenced in 2003.

Escape to the country-ites keen for a budget-priced property should definitely not move to the Southern Highlands and Shoalhaven areas in NSW.

In the country’s highest annual regional house value growth, properties in these regions soared 38.2% in the 12 months to January 2022.

Second in line for extraordinary house value growth is Queensland’s Gold Coast (36.3%) and the Sunshine Coast (35.4%).

However, if you’re thinking of selling up this year, you can count yourself doubly lucky if you’re on the Sunshine Coast, where homes boast the quickest selling time in the country of just 15 days.

Close behind the Sunshine Coast with a median time on the market of only 16 days is Launceston and north-east Tasmania, the Gold Coast and Toowoomba.

What’s next for regional property?

Everything’s not lost with Ms Owen expecting regional growth rates to start slowing early this year.

“The expectation is there will ultimately be few regions that can avoid a downswing over the next few years,” she stated.

“Key drivers for performance in the regions will come down to higher interest rates and affordability constraints, the same headwinds capital city markets are facing.”

However, Ms Owen advised potential country buyers that there could still be some regional property growth this year, particularly if interest rates rise.

She added that the possibility of a return to “normality” could also be a challenge, rather than a great expectation, for the regional property market, as this could result in a refocus on cities.

However, this was unlikely, she said, with Australians now prioritising their current housing needs to align with their desired lifestyle.

What does this mean for my property plans?

Simple: don’t stop believing in them!

This information and statistics are crucial for you to consider but at the same time, don’t give up on your plans to buy, sell or invest in property, regardless of where that property is. Sign up to Listing Loop to get first access to pre-market, off-market and secret property listings.

If you’re concerned about how much you can afford to borrow, check out our mortgage calculator, or if you’re rethinking your loan, you may want to consider refinancing.

We have plenty more great loan advice and tips to give you as well so give us a call today at Lending Loop.

How to keep cheap when buying

You don’t have to be a real estate expert to know that property and rent prices are skyrocketing at the moment, with the latter area also experiencing plunging rental vacancies.

Then there’s our 15th consecutive month of 0.1% record low interest rates and an inflation rate of 3.5% over the year to December,  with the recently released trimmed mean figure of the last quarter at  2.6%, according to CoreLogic.

This highly interesting – to say the least! – situation has plenty of potential home-buyers wondering if they can afford even a shabby shack in Timbuktu.

Can I afford to buy a nice home?

We at Lending Loop have been pondering this question a lot lately but it was some recent words from Reserve Bank of Australia’s (RBA) governor, Dr Phillip Lowe, which made us think differently on this issue.

In an address to the National Press Club last Wednesday, Dr Lowe commented that most people were now choosing to live in “fabulous cities on the coast (and) we want large blocks of land”.

While these words didn’t impress a lot of people, Lending Loop saw it as a good chance to bring some positive hope to those disillusioned by current economic and real estate figures.

Basically, yes, living in a fabulous coastal city on a mega block of land – or even in a nice suburb with some greenery – may not be possible anymore.

But you don’t have to ditch your house dreams altogether because guess what?

Everything’s not lost

We suggest first-home buyers, experienced owner-occupiers and property investors all think outside the box when it comes to buying.

Be prepared to make some sacrifices and accept some imperfections to find that great property.

Here are our favourite unconventional and creative ways to beat today’s difficult economic figures:

1. Look for places near large parks, playgrounds etc

We’ve all seen those rather bland properties with little character or space to spare, if at all.

But look beyond the tiny bland and aim for a place within walking distance – or a short drive to – parks, sports fields, playgrounds, or walking and cycling trails.

For families, in particular, having spacious play areas nearby will make a big difference.

2. Tiny houses or townhouses

They’re all the rage now and it’s easy to see why: tiny houses cost far less than the average house and can enable you to live on a big block of land or even travel in style.

Another, similar but larger option, is to buy a townhouse with a courtyard or a small, private garden.

This way, you, your kids and your pets can still enjoy some outdoor space.

3. Move outwards

While not a new idea, moving to an outer suburb is a particularly pertinent plan for first-home buyers.

These suburbs may not be uber-rich and fashionable and living there may mean a longer commute to work.

But many many of these places are swiftly gentrifying and are often closer to regional and rural areas that make great places for you to visit on weekends and holidays.

Your outer suburb property doesn’t have to be your forever home either.

4.  Rentvesting

An increasingly popular idea, rentvesting effectively allows keen buyers with limited funds to enjoy the best of both worlds.

The concept means you can rent your current home for its preferred, yet expensive, location and lifestyle while buying an investment property in a cheaper suburb.

In this way you can live where you want to live, even though this means you’re still renting, while also enjoying the benefits of property investment.

Any profits from your investment can be used to pay your rent and the concept can also give you tax benefits.

Cheers to cheaper!

Wherever you are in the property race, we encourage you to be confident and go forth, particularly now that we’ve hopefully given you new ideas and encouragement to do so – and if nothing else but to defeat depressing figures!

We have plenty more great loan advice and tips to give you as well from refinancing to calculating your budget and more.

So, give us a call today at Lending Loop.

When it comes to securing your first home, trust matters

Buying your first home is one of the most important decisions of your life and it’s no surprise more and more Aussies are looking to trusted mortgage brokers to help make the process simple and cost-effective.

In fact, according to a recent survey of first home buyers, nine out of 10 said they trust a mortgage broker to help them secure their first home.

Making the leap into home ownership can seem daunting at first, but the good news is that mortgage brokers can offer great support to break down and simplify the steps you need to take to get on with the most important part – enjoying your first home!

It’s good to know that mortgage brokers are bound by a duty to serve the best interests of their customers and to get the best outcome possible. For many first home buyers, this can be a huge weight off their minds.

The Genworth First Home Buyer Report 2021 surveyed 2077 prospective and 1008 recent first home buyers this year, showing the importance of having the right advice.

Almost 90 per cent said mortgage brokers provided valuable support and reliable advice during the home buying process.

The report also revealed that many buyers were taking a ‘now or never’ approach to get into the market and secure their first property, based upon their stage of life, low interest rates and a booming real estate market.

Investment properties continue to attract buyers with almost three in four first home buyers looking to enter the market with a deposit of less than 20% (73%) and the majority with less than a 15% deposit (56%).

Spurred by the pandemic, first home buyers are increasingly looking outside capital cities to find a more affordable home to enter the market, with more than a 7% rise in purchases in regional and rural areas.

WE CAN HELP YOU SECURE YOUR IDEAL FIRST HOME

Unless you’ve been living under a rock you will have noticed property prices across the nation are undergoing massive growth, pushing sales prices to record highs.

This can be a major source of frustration for new buyers who had their hope on buying in certain suburbs only to be now priced out of contention.

But this is not always the case and a mortgage broker can help you formulate a winning strategy that’s within your reach. 

A number of federal government schemes are available, including the First Home Loan Deposit Scheme – which enables you to buy your first home with a deposit of just 5% without paying for Lenders Mortgage Insurance.

State and territory government schemes, designed to assist first home buyers to get their foot in the property market, also may be available including first home buyer grants and stamp duty concessions.

Give us a call and talk to us today. We’d love to hear about your plans and help you secure your first home without the stress and worry.

Help at hand to better understand the home purchasing process

Many people know why they should invest in the property market and sometimes they even know a lot about where and what type of real estate they are interested in, too.

But the big question many new buyers can often overlook are about the financial process and all of the details that come with the question – How. And according to a 2021 survey, you wouldn’t be alone. 

This year’s UBank Know Your Numbers survey revealed that 84 per cent of Australians who are yet to secure a property admit they don’t know enough about how home loans, deposits and mortgage rates work, while three in 10 admitted to knowing nothing at all and having no idea where to start.

UBank CEO, Philippa Watson noted that while some rates can seem attractive at first glance, there are common pitfalls that new buyers can get caught up in.

“Entering the property market with little to no knowledge of some essential financial terms and concepts could see Australians falling into common traps or getting themselves into situations they cannot manage,” Ms Watson explained.

JARGON BUSTER:

There’s no shortage of seemingly complicated jargon in the financial world, so we’ve put together a list of some of the most common financial terms we explain to our clients.

Loan to Value Ratio (LVR): LVR is the percentage of the property’s value (as assessed by the lender) that your loan equates to. So, for example, if the property you want to purchase is valued at $500,000 and you need to borrow $400,000 to pay for it, the loan is worth 80 per cent of the property value, making your LVR 80 per cent.

Lenders Mortgage Insurance (LMI): LMI is insurance that protects the bank or lender in case you can’t pay your residential mortgage. It’s usually paid by borrowers who have an LVR higher than 80 per cent – that is, borrowers with a deposit of less than 20 per cent.

Offset account: an offset account is just like a regular transaction account, except it’s linked to your home loan. The money held in the account is counted as if it’s been paid off your home loan, which reduces the balance of the loan and in turn, reduces the interest you need to pay.

And because the offset account acts like a regular transaction account, the money you’ve put in there is still accessible whenever you need it.

Refinancing: refinancing is the process of switching your home loan to take advantage of another, more suitable home loan for your present circumstances, such as one with a lower interest rate that might save you money. 

Have you got any other finance terms you’d like explained? We know some of the terminology around buying your first home can be confusing. If there’s anything you would like us to clarify please reach out to us today.

WE’RE HERE TO HELP:

The good news is that’s what we do best every day. We see it as an opportunity to help educate more buyers and assist with every step on the road to home ownership.

Our mission is to simplify and streamline the whole process, so you can get on with the important things that matter to you. 

We’ll be sure to explain in detail any financial terms or products you may not be totally familiar with.

We’re not just satisfied with matching you up with a home loan, we want you to be confident that it’s the right one for you, and for you to understand the reasons why.

Make the most of increased caps and move into your dream home sooner

With caps increased from July 1, more and more first home buyers are now able to make good use of the Federal Government’s 5 per cent no Lenders Mortgage Insurance (LMI) scheme.

Since 2020, The First Home Loan Deposit Scheme (FHLDS) has helped thousands of budding home owners get into the property market sooner.

This year, the good news is that single parents with dependent children can also look to benefit from higher price caps, which also applies to the government’s new Family Home Guarantee scheme.

Below you can see a summary of how much money you can spend while still remaining eligible to qualify for the FHLDS and Family Home Guarantee Scheme (FHGS).

  • New South Wales: $800,000 (Sydney, Newcastle/Lake Macquarie, Illawarra) and $600,000 (rest of the state).
  • Victoria: $700,000 (Melbourne and Geelong) and $500,000 (rest of the state).
  • Queensland: $600,000 (Brisbane, Gold Coast, Sunshine Coast) and $450,000 (rest of the state).
  • Western Australia: $500,000 (Perth) and $400,000 (rest of the state).
  • South Australia: $500,000 (Adelaide) and $350,000 (rest of the state).
  • Tasmania: $500,000 (Hobart) and $400,000 (rest of the state).
  • ACT: $500,000.
  • Northern Territory: $500,000.

More detail about increased property price caps is available on the NHFIC website.

The First Home Deposit Scheme enables eligible first home buyers to purchase a residence with only a 5 per cent deposit and to avoid forking out for lender’s mortgage insurance (LMI). This can save buyers anywhere up to $35,000, depending on the property price and deposit amount.

Meanwhile, the new Family Home Guarantee Scheme allows eligible single parents to build or purchase a home with a deposit of just 2 per cent without paying LMI, regardless of whether or not this is their first home.

These schemes run alongside the New Home Guarantee Scheme, a new initiative that allows both eligible first home buyers to build or purchase a new build with a 5 per cent deposit. This scheme features even higher property price caps which accounts for the extra costs that come with building a new home.

THE TIME IS NOW:

With only 10,000 spots available under each of these schemes, it’s important to get in quick as previous rounds tell us they are going to go fast. And if you’ve been thinking about looking into your options but keep putting it off, consider this the reminder you need to take action and see how you can take advantage before the opportunity has passed by.

How 1-in-10 first home buyers cracked the market 4 years sooner

We love a feel-good news story around here.

And hearing that so many first home buyers got a leg up into the property market much sooner than they ever dreamed makes us feel pretty warm and fuzzy.

This week the federal government released figures on the popular First Home Loan Deposit Scheme (FHLDS) and New Home Guarantee (NHG) initiatives.

The data showed that the two initiatives supported 1-in-10 first-time homeowners during the 2020-21 financial year.

And on average, the schemes allowed those first home buyers to bring forward their home purchases by four (FHLDS) to 4.5 years (NHG).

 

Hold up, what are these first home buyer schemes?

The FHLDS allows eligible first home buyers with only a 5% deposit (rather than the typical 20% deposit) to purchase a property without forking out for lenders mortgage insurance (LMI).

This is because the federal government guarantees (to a participating lender) up to 15% of the value of the property purchased.

Not paying LMI can save buyers anywhere between $4,000 and $35,000, depending on the property price and deposit amount.

The NHG scheme is very similar but is only for new builds – such as house and land purchases or a land purchase with a contract to build.

Another key difference is that the NHG property price caps are higher (see here) to account for the extra expenses associated with building a new home.

 

So who’s using the schemes?

Mostly younger buyers!

According to the latest stats, 58% of all buyers under the schemes are aged under 30-years-old.

NSW (11,000 residents) and Queensland (9,000 residents) make up nearly two-thirds of the scheme’s recipients.

And it turns out that most first home buyers who secured a spot in one of the schemes used a mortgage broker (56%).

But for the NHG scheme specifically, brokers originated the vast majority of government guarantees (72%).

 

How to secure a spot

We’ve got good news. And a bit of not-so-good news.

The good news is that for the NHG, only 2,443 of the 10,000 spots had been secured as of October 6 – so there’s still the opportunity for eager first home buyers wanting a new build.

The not-so-good news is that spots in the FHLDS are almost full for the latest round released on July 1.

Figures show that 7,784 of the 10,000 spots have already been secured, and word is that participating lenders have waiting lists for many of the remaining spots.

That said, if you’re a single parent there’s a third, similar scheme called the Family Home Guarantee (FHG), which allows eligible single parents with dependants to build or purchase a home with a deposit of just 2% without paying LMI.

Only 1,023 of 10,000 spots have been secured in the FHG, for which you don’t need to be a first home buyer.

Last but not least, it’s worth noting that the FHLDS is an annual scheme with new spots expected to be available from July 2022 – and previously the federal government made a surprise announcement to release 10,000 additional spots in January.

So if any of the above schemes are of interest to you, get in touch with us today and we can run you through everything you need to know about them so that you’re ready to apply when the time comes.

 

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Four key tips for helping you make the big home loan switch

There’s no better time than now to find a better deal on your home loan and we’ve observed the sharp rise in homeowners seeking to explore refinancing options since the beginning of the global pandemic.

And there’s good reason we’re seeing more and more mortgage holders seeking a better deal. With the total number of home loan customers who switched providers jumping by 27 per cent – from 143,664 in 2019 to 182,016 in 2020.

More than 200,000 Australian families are tipped to make the switch in 2021. But making the switch isn’t foolproof and there are common mistakes people make.

Laura Higgins, Senior Executive Leader Consumer Insights and Communication at ASIC, recently shared some important tips with ABC radio, which we’ve compiled for you below as well as some additional advice for good measure.

  1. GET A BETTER DEAL WITH YOUR CURRENT LENDER

When it comes to the big banks and home loans, it’s often the case that customer loyalty goes largely unrewarded. RBA data tells us that for loans written four years ago, borrowers were charged an average of 40 basis points higher interest than new loans.

So on a loan balance of $250,000, the reality is that it could cost you an additional $1,000 in interest payments each year.

“Many times, new customers are offered a better deal than existing borrowers, so if you have a home loan that is a few years old you could potentially get a better deal that saves you thousands of dollars over time,” Ms Higgins explains.

“Even if you’re happy with your current lender, it’s worth checking you’re not paying for features or add-ons you’re not using.”

  1. LOOK BEFORE YOU LEAP

Cashback offers and super low interest rates are just two ways lenders are enticing new customers to make the switch, which means you need to do your homework first to ensure you’re truly getting the best deal.

Glittery incentives are designed to entice customers to switch mortgages quickly, but Ms Higgins urges borrowers to look closely and weigh up the long-term costs.

“For example, it’s worth doing the maths to ensure a cashback offer still puts you ahead over the long-term when considered against other aspects of the loan, like interest rates and fees. If you decide to switch lenders, you may end up with a longer-term loan,” she said.

It’s vital to check whether you’re up for any other costs such as Lenders Mortgage Insurance (LMI) or discharge and loan arrangement fees, which can sometimes outweigh the benefit of having a lower interest rate.

“A mortgage broker can also help you compare loans and decide whether to switch,” Ms Higgins adds. 

  1. OFFSET BUT DON’T FORGET

If you’ve been lucky enough to put some savings away and are now eyeing off low interest rates, perhaps it’s wise to try and pay off your mortgage sooner rather than later.

And as Ms Higgins notes, “Interest rates may be low now, but probably won’t be this low forever. Making some extra repayments now can benefit customers in the long term.”

But if you’re not quite in that position and are worried about tying up all your funds in your home loan, perhaps consider switching to a mortgage redraw facility or offset account, which can help you to make extra repayments but still withdraw them if you need to.

“Either of these options might work for you depending on your goals,” Ms Higgins adds.

“Not all home loans can be linked to an offset account, and often those that can may have a fee charged or a slightly higher interest rate, so it’s worth making sure you’d be saving enough in there to warrant any extra costs.”

  1. TO FIX OR NOT TO FIX IS NOT THE ONLY QUESTION

One of the most common big questions we field relates to whether you should consider a fixed home loan rate or not, however it’s good to know there is another option available.

The good news is that you can also choose to fix the rate for a part of your mortgage, but not all of it. Doing this allows you to lock in a low rate for a portion of your home loan, while also taking advantage of some wriggle room a variable rate can offer, including being able to make extensive additional payments.

WANT TO FIND OUT MORE?

Now really is the time to get on top of your refinancing options and see how your loans can work for you, instead of you working for them – now and well into the future.  We would love to go over home loan refinancing options with you, whether that be renegotiating with your current lender or exploring your options elsewhere.

Get in quick while First Home Loan Deposit Schemes are still available

With the latest offering of loan deposit rounds already well underway, now is the time to find out how you can take advantage of the Federal Government lending schemes before it’s too late.

And if you’d like the idea of paying no Lenders Mortgage Insurance (LMI) and buying your first home with just a 5 per cent deposit, then you need to get in before the limited spaces have been taken.

In years previously, the 10,000 places released in each round in the The First Home Loan Deposit Scheme (FHLDS) have been snatched up within a few months, and we’ve had more than a few hopeful applicants reach out to us only to find out the opportunity has passed them by.

And if you’re doing it solo as a parent with dependent children, a similar scheme now allows you to purchase a home with just a 2 per cent deposit and without paying LMI, regardless of whether or not you’re a first home buyer.

The three Government schemes, released on July 1, announced a fresh round of 10,000 spots. Let’s take a closer look at each.

FIRST HOME LOAN DEPOSIT SCHEME (FHLDS)

Commencing at the start of 2020, The FHDS has helped thousands of Aussies get their foot in the doors of the property market, accessible to those wanting to build or buy their first home.

The scheme allows eligible first home buyers with just a 5 per cent deposit to buy a property without having to pay LMI. The scheme is backed by government guarantees (to a participating lender) up to 15 per cent of the value of the home you’re purchasing.

While it varies based on the cost of the home itself and deposit amount, not having to dip into your pocket for LMI means potential savings of between $4000 and $35,000. Depending on the property price and deposit amount.

10,000 First Home Loan Deposit Scheme places will be available to eligible first home buyers from 1 July 2021 to 30 June 2022.

The New Home Guarantee Scheme (First Home Buyers)

This scheme allows eligible first home buyers to build or purchase a new build with a 5 per cent deposit.

While it is a similar proposition to the FHLDS detailed above, one of the key differences is that the price caps are higher, to account for the extra expenses which come with building a new home.

The Family Home Guarantee Scheme (Single Parents)

This scheme enables eligible single parents with dependents to build or purchase a home with a deposit of just 2 per cent and without paying LMI.

But unlike the other two schemes detailed above, you don’t have to be a first home buyer to qualify for this scheme. So how does it work?

Well let’s take this as an example. Jeremy is a single parent with two young kids. Let’s say he’s found the perfect home for $460,000 but has struggled to save enough for the standard $92,000 deposit (20 per cent) required while paying rent. With the Family Home Guarantee, and pending a successful application with a lender, John could move into his dream home sooner, with just a $9,200 deposit (2 per cent).

BE QUICK, CALL US TODAY!

All schemes listed here have only 10,000 spots available for prospective homeowners for this scheme this financial year – and in previous years they’ve been allocated within a few months. So you’ve got to get in quick!

Avoid disappointment, get in touch with us today and we can help you determine which scheme is most suitable for you, and then help you apply for finance with a participating lender.

The importance of being ready for interest rate hikes

How well prepared are you for a rise in interest rates? While that may seem like an odd prospect for many of us after 18 consecutive cash rate cuts from the RBA, we always need to be prepared.

And when the big banks start showing signs, it’s time to consider what that might look like for you in a practical, month-to-month sense.

What would an interest rate rise look like for you and how much extra would a new mortgage holder expect to pay each month? 

RATE RISE PREDICTION:

While the RBA’s official position has been that it doesn’t expect to lift the lid on the cash rate until 2024, and this month held the rate at 0.10 per cent, there’s healthy speculation that the next rise in rates could arrive as early as 2022.

Westpac and the Commonwealth Bank have earmarked the period between late 2022 and early 2023 as a likely time when rates may start to spring up, with the official cash rate predicted to hit 1.25 per cent in the third quarter of 2023 and peaking in 2024.

Meanwhile, NAB increased its two, three and four-year fixed rates by up to 0.10 per cent for owner-occupiers paying principal and interest.

Banks have the ability to increase fixed rates as a method of heading off potential RBA rate hikes. In overall terms, this means that the shorter the length of term of the fixed rate that is increased, the sooner a bank is expecting the next increase in rates will be.

Generally, the shorter the term of the fixed-rate that’s increased (ie. if two-year fixed rates are raised), the sooner a bank may predict the next rate hike will be. And with economists at the big banks seeing that future in their crystal balls, how should you be planning to make the most of it and how much extra money should you be factoring into your monthly mortgage repayments if the official cash rate starts to rise?

THE HIP-POCKET IMPACT:

You’d have to cast your mind back to 2019 to find the last time that the RBA cash rate target was at 1.25 per cent. Although it wasn’t that long ago, it seems like a completely different world – before the global COVID pandemic appeared like an unwanted neighbour at a backyard barbeque.

So, just how much extra should the average mortgage holder expect to pay?

Modelling provided by Canstar showed that the average variable mortgage rate would jump from 3.21 to 4.36 per cent, based on the current gap between the two rates.

In plain English terms, this means that if you took out a $500,000 loan tomorrow, and the cash rate hit 1.25 per cent in 2024, the modelling estimates your monthly repayments would increase $300 to $2464 per month. Commonwealth Bank’s modelling covers a similar scenario, with repayments up $324 per month.

That’s despite shrinking your remaining loan balance to $468,770 after three years of repayments, and assuming the banks only add on the cash rate increase – and not any extra. On top of that, there’s also the possibility that even more waves of RBA cash rate increases could soon follow.

So if the average variable loan rate increased to 7.04 per cent in 2031, where it was not that long ago back in 2011, Canstar estimates that same borrower who took out a $500,000 loan would pay $900 more in monthly repayments than they do now, even after a full decade’s worth of repayments.

TAKE OUT THE GUESSWORK:

Every household is different, in unique situations and you can’t take a one-size fits all approach. Let us run you through your options and help you find the right mortgage option for you.

It may be difficult to imagine that interest rates could rise from the relaxed position of the current record low cash rate, however it’s vital to pay close attention. We had 18 cash rate reductions before the RBA increased the cash rate to 4.75 per cent back in November 2010.

It pays to look ahead, if you’re worried about what such a scenario could mean for you and your home budget in the coming years, get in touch with us today and we can run you through a number of options that include (but are not limited to) fixing your interest rate for two, three, four or five years, or just fixing part of your mortgage (but not all of it).