Do you have a fixed rate mortgage? In the not-so-distant past, fixed mortgage rates plummeted to levels that hadn’t been witnessed in decades. Borrowers rejoiced as they gained access to interest rates hovering around the astonishing 2 per cent mark or even lower. Since that golden era, there has been a significant transformation in the interest rate landscape. The Reserve Bank of Australia, in a mere 18 months, lifted the cash rate from 0.1 per cent to 4.35 per cent.
For many, this upward trajectory in interest rates has caused considerable strain. Among the most affected are homeowners who opted for fixed-rate mortgages in the years 2020-2021. As these fixed rates come to an end, they are staring down the barrel of hundreds, if not thousands, of dollars in additional monthly repayments.
RBA data offers a glimpse into the magnitude of this situation: 590,000 mortgages transitioned from fixed rates in 2022, with projections of 880,000 doing the same in 2023 and 450,000 in 2024. This looming fixed-rate mortgage cliff has prompted the need for many Aussies to be proactive with their finances.
Here are some crucial tips to help you navigate the transition.
Evaluate your options
Before you allow your mortgage to roll over to your lender’s standard variable rate, consider negotiating a lower rate. You may be surprised to find that your lender is open to offering you a reduced rate to retain your business.
However, don’t feel obligated to stick with your lender if you believe better rates are available elsewhere. Take the time to compare alternative options in the market and be ready to refinance if you uncover a more favourable deal (and if you meet the eligibility criteria). You can always work with a Mortgage Broker to assist you in finding the best home loan to suit your financial circumstances.
Reassess Your Budget
The current cost of living crisis has prompted many Australians to take a closer look at their financial situation. The specific steps may vary from one household to another, but it often boils down to a heightened awareness of spending habits. Tracking your expenses can reveal unnecessary purchases and motivate you to make essential adjustments. You can do so with a spreadsheet, or by utilising one of the many budgeting apps available for download. Budget planner – Moneysmart.gov.au
Additionally, consider reviewing your utility and insurance expenses to determine if you are overpaying. In the realm of energy costs, the Government’s Energy Made Easy website can assist you in navigating the market and potentially finding a more affordable energy plan.
Seek Assistance
There’s no shame in admitting that you may be struggling financially and need support. Many others are likely in the same position, so don’t hesitate to express your concerns. When you find it challenging to meet your mortgage obligations, consider reaching out to your lender as soon as possible. They should be able to connect you with their hardship team, who may be able to assess your specific situation and provide tailored support.
Depending on your circumstances, this support may entail modifying the terms of your loan or temporarily suspending your repayments. However, it’s essential to be aware that freezing your repayments can result in continued interest charges, potentially leading to higher overall costs over the life of your loan. If you are struggling with loan repayments, you can always reach out to the friendly APS team to discuss loan options, mortgage broking, or any other ways to support you during the transition to a variable rate.
Written by APS Manager of Home Finance, Tony Calder.
Tony has over 30 years of experience in lending and finance. His focus over the past 20 years has been in residential property lending, initially at Westpac and for the past 8 years at APS Benefits Group. Tony enjoys helping APS members and clients get the right loan to meet their specific needs and one of the advantages of working at APS is that he has access to a number of lenders. APS is a residential property lender, so if someone finds it difficult to get a loan through the banks, Tony can on most occasions fund the loan through APS, which is a great outcome for members and clients. When Tony isn’t working, he enjoys travelling, dining out with family and friends and playing golf.