Does your home loan rate have a 5 in front of it?

Plenty has been written about how Australia is about to jump off a mortgage cliff into a mortgage prison. The quick facts are these: 880,000 fixed rate home loans are set to expire before the end of 2023 and a further 450,000 in 2024. The immediate impact on an average Australian home loan, assuming it is fully fixed rising from 2% to 6% over a 28 year remaining term is approximately a 50% increase in monthly repayments.

Margin creep, or lenders increasing their interest rate margin beyond their cost of funds has contributed in part to increased bank profitability with borrowers who have bought a home or residential investment property recently unable to combat this as they think they have exceeded the thresholds required to refinance even though they have been meeting repayments. However, to combat this, some lenders have reduced the ‘buffer rate’ for refinancing debt. This is the rate above the actual interest rate set when assessing the loan as a method to stress test a borrowers ability to pay their loan repayments.

The prevailing thought on interest rate trends is varied. The 3 year fixed rate have trended towards the 90 day bank bill swap rate in the last month, suggesting the market thinks that long-term rates are going to trend down, but markets can be wrong. Either way, the margin you are paying above the banks cost of funds can be reduced by a refinance, the savings of which are generally worth the effort of doing so more than switching any other utility or subscription service.

As a broker with 15 years lending experience, I have the tools to help you structure a loan that can reduce your rate, repayment, or allow you to keep your payments the same and pay off your loan faster. Reach out to me if this sounds like a good idea.

Let me know if you’d like to discuss your options.