Mortgage holder guidance – navigating the current interest rate environment

26 July 2023

The current interest rate environment is challenging. Australia’s cash rate has risen 12 times from .10% back in April 2022 to maintaining it at 4.10% in July 2023 – an increase of 4% in the cash rate since April 2022.  With the RBA remaining steadfast to its inflationary target to ensure inflation does not become entrenched, and the employment market remaining tight – the likelihood is more pain before some light on the horizon.

As finance and mortgage brokers we are assisting mortgage holders through this time and wanted to share some guidance and tips for consideration.

The impact on existing mortgage holders

• For those on variable rates the cash rate rises have been passed on directly by providers – which along with other cost of living pressures has made many household budgets very tight.
• For example, for a borrower with a $500,000 home loan with 25-years remaining, paying 2.19% in April 2022, their current rate would now be 6.19%, and they would be paying and additional $1,127 / month.

• For those on fixed rates – a stark increase of 4.00% (at July 2023) is on the horizon when the fixed rate expires – and there are some 880,000 Australians coming off fixed rates in 2023 and 450,000 in 2024.

If you are currently on a variable rate

What to be aware of:

• If you have not had your bank or mortgage broker recently review your current rate you may find you are paying more interest than you need to be. We have found some variable mortgage holders are paying 50 – 100bp more than they need to be. For example, someone whose rate is 1% above market, with a loan of $500,000 would be paying an additional $5,000/ annum in interest.

What you can do:

• Call your bank or request your mortgage broker call your bank and ask for a better rate!
• Review this against other providers in the market – it may be a better rate can be secured.
• We are finding some banks and providers are offering better “new to bank” rates than “retention rates”. Some providers are also offering cashbacks to cover the associated costs of changing providers.
• There is also consideration of fixing – noting fixed rates have been well above the variable rates – with some starting to come back now.

If you are currently on a fixed rate

What to be aware of:

• Ensure you understand when your fixed rate expires.
• Understand as best you can what your rate will be when it goes to variable. Noting your rate will go to the banks “revert rate” or “standard variable” rate – some of which will have an even bigger impact than the 4.00% cash rate rises over the past year.

What you can do:

• Build your budget based on the new repayments. If possible, start setting aside funds and create a buffer.
• When or within a few weeks of it rolling off fixed call your bank or request your mortgage broker to call your bank and ask for a better rate!
• Review this rate against other providers in the market – it may be a better rate can be secured.
• We are finding some banks and providers are offering better “new to bank” rates than “retention rates”. Some providers are also offering cashbacks to cover the associated costs of changing providers.

How we can assist:

• We can approach your current provider at no cost to try and secure a better rate.
• We can then review this outcome against the market and if we can secure a better rate elsewhere – and if it makes sense look to undertake a refinance. There are also cashback opportunities available in some cases.

Anthony Landahl | Managing Director Equilibria Finance

This is for general information purposes only and does not constitute advice. With all of these options there are a number of considerations outside the scope of what is covered in this article that you need to understand to ensure your personal circumstances are taken into consideration.

Equilibria Finance is a mortgage broking practice specialising in delivering residential and commercial mortgage and business and asset finance solutions to the clients of financial advice and accounting practices.