More than half of the 2,500 Australian adults surveyed about mortgage payments are worried they won’t be able to cover the cost if the Reserve Bank increases the official cash rate.
Canstar’s analysis showed the average variable rate would rise from 2.99% to 3.89% if the cash rate reaches 1% this year.
The financial comparison site said this would result in monthly repayments for a house with the national median home value of $805,621 rise by $322 per month to $3,036. This would cost borrowers almost an extra $4,000 per year and more than $116,000 in interest over the life of their loan.
Mortgage broker Tom Uhlich (pictured), who owns Brisbane brokerage Boss Money, said the boat on low fixed rates had sailed.
“Six to 12 months ago, two- to five-year fixed rates were under 2% but at the time no-one wanted to fix as we were in the middle of COVID. Since then, fixed rates have increased with fixed rates over 3%,” Uhlich said.
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Uhlich asks his clients whether fixing their interest rate or resuming on a variable rate is the right decision for them and their circumstances.
The mortgage broker encouraged Australians to be on top of their debt and have a broker check the rate to the market. Loans needed to be structured their loan so it works for clients rather than against them.
“Keep pushing your bank and when they finally say no, then check your rate against the best in the market and see what sort of savings you will gain by moving banks (versus the costs),” said Uhlich.
Canstar group executive financial services Steve Mickenbecker said anyone with a mortgage would likely feel financial pain when the Reserve Bank raised the cash rate this year as predicted by some of the major banks.
“With demand in the economy driven by government spending rather than wages growth, the federal budget leaves the Reserve Bank in a conundrum. If the Reserve Bank lifts the cash rate in response to inflation before wages take off, widespread household stress will follow,” Mickenbecker said.
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Canstar’s survey found that if interest rates rose in line with some of the major bank forecasts, close to three quarters (72%) of borrowers would need to forgo certain expenses to afford home loan repayments.
“There is little doubt that the banks will fully pass on the cash rate increases to borrowers, and it’s expected that multiple increases will follow,” Mickenbecker said. “Home loan interest rates are likely to be close to 2% higher in a couple of years.”