As hundreds of thousands of Australians brace for more mortgage payment trouble amid the Reserve Bank’s latest forecast, a financial expert has revealed the best way people can get their home loan right and avoid heartache. financial head.
Marion Kohler, head of the RBA’s economic analysis department, broke the grim news on Wednesday that more than 800,000 households are forecast to switch from fixed rates to more expensive variable rates this year.
The move could have a big hit on interest rates for some Australians, who could face additional payments of up to $1000 on their mortgages, this is after rates rose from 0.1 percent in April last year to 3 .1 percent at the end of the year.
Financial expert Richard Whitten said some people could be facing a “big burden” in moving to variable rates in an economy already hit by inflation and rising cost of living.
Speaking with NCA NewsWire, the money editor of financial comparison website Finder said there was one key thing people could do to combat the interest rate pain: get advice and shop around for lower rates.
“Typically, that means refinancing: looking elsewhere, shopping around, finding a lower-rate loan for a similar type of product,” Whitten said.
“That’s usually the best way to bring the interest rate cost down a bit.”
Whitten said many lenders were raising their rates, but also lowering them for new borrowers to attract new business.
“Let’s say your rate is stuck at 5 percent now; you might find that other lenders are doing 4.8 percent or 4.7 percent or something like that, and that’s 30 basis points lower,” he said.
“It still translates to $100 a month, so that’s kind of a savings you can get.”
Refinancing to a new 30-year loan is also an option to give borrowers more breathing room on monthly payments, but Whitten said the caveat to this was that people would end up paying more in the long run.
“It raises interest, but you can make that work for you,” he said.
“It lowers your payments a little bit from month to month and you can get that time back if you have a clearing account or extra payments on the loan, you can still stay ahead.
“Extending the loan may increase your interest over time, but you can manage it in a way that doesn’t really affect you as much.”
Looking to buy outside capital cities, something Whitten said was a “difficult” move, is another option that could change what people can afford and lead to better long-term back-pocket savings.
Giving advice to people moving at a variable rate, he said the first thing they should do is check what the new rate would be.
So, one question must be asked: “Is my lender giving me the best deal on my current loan?”
“You would hope that a lender wouldn’t put someone at 2 percent to 6 percent … you expect them to give you their best available variable rate offer,” Whitten said.
“Beyond that, get a loan payment calculator now, look at your rates, and ask, ‘What does my payment look like at 5 percent? At 6 percent?
Mr. Whitten urged borrowers to look at potential payments and ask how they would fit into their budget, including how they would manage different expenses.
The RBA estimates that around $350 billion in loans would change at variable rates, but even the estimate of 800,000 homes was a “guess” estimate.
Ms Kohler made her comments during the Senate cost of living committee on Wednesday, but clarified that the RBA had determined that the peak of inflation was at the end of 2022.
“We think that … (that) will start to slow down over the course of this year,” he said.
“We understand that some people are finding it difficult to handle rising interest rates and others will have to cut back on discretionary spending.
“However, higher interest rates are needed to ensure that the current period of higher inflation and cost-of-living pressures does not persist for too long.”
Despite the green shoots, Whitten said it was still not a good time for people to get into the real estate market.
Examining factors such as massive rate hikes, low wage growth, the ongoing recovery from Covid-19, and house prices going up and down, he said it was difficult trying to break into capital city markets. .
“Lenders are well aware of their responsibilities and obligations under the National Consumer Credit Protection Act,” Mr. Whitten said.
“They really want to see that you are borrowing a reasonable amount of money that you can repay, that your income is stable, that your spending and expenses are within reason; They are looking at all of that very closely.”
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