Last month, the Reserve Bank raised interest rates for the first time in almost twelve years, and economists are predicting more of the same over the next twelve months.
Yet, while this has been anticipated for some time, a recent survey conducted by Mortgage Choice found that many Australian mortgage holders are not prepared for the rising interest rate environment.
Mortgage Choice National Sales Director David Zammit noted that when the RBA raised the cash rate from the previous record low of 0.10% to 0.35% in May, most lenders were quick to pass on the rate rise to borrowers.
“We asked survey respondents what home loan rate they were on and found that 55% did not know”, Zammit said, adding that in this environment, it is important borrowers are informed so they are not overpaying.
“Given how complex the lending landscape is with hundreds of products in the market, it is not easy for borrowers to know whether they have a ’good rate’ – unless they use the expertise of a broker who has this information at their fingertips.
“With the cost of living rising rapidly, Australians will be questioning how to lessen the burden on their hip pockets. Getting a better deal on your home loan is a great place to start.”
When asked at what point they would become concerned about interest rate rises, 17% of respondents nominated just 1%, while 48% would be concerned if rates rose by 2%. Given that interest rates are coming off all-time lows, a 2% rise for some borrowers is nearly a doubling of the interest that they are being charged each month.
One in two respondents said they could afford to pay an extra $201 per month and only 33% of borrowers could afford to pay an additional $401 or more per month.
“If you’ve fixed your rate in the last couple of years and your fixed-term is coming to an end soon, you’ll need to decide whether you want to fix your rate again, or whether you’d rather choose a variable rate home loan”, Zammit advised.
“With so many options on the market, it’s important to have expert guidance, especially given that in many cases the difference between a fixed rate and the variable rate can be 1% to 2%.”
Zammit went on to suggest that a mortgage broker can help borrowers feel like they’re not alone.
“90% of survey respondents who used a broker said they were confident the broker had their best interest at heart, versus 74% of respondents who used a lender.
“Brokers can review your current home loan to see if their home loan remains the best option for them and, if it’s not, they can recommend a better deal to save you money”, he concluded.
