Time to read : 3 Minutes
Avoid Falling Off An Unprecedented Mortgage Cliff
Aussies with fixed rate home loans need to prepare to fall from an "unprecedented" mortgage cliff.
Why? Because, based on the current interest rate rises (and more predicted), mortgage repayments are set to more than double when fixed-term loan components expire.
About half of all Australian homeowner borrowers will have their fixed-rate loan expire later this year. That adds up to around $350 billion of mortgage debt – and the switch to variable rates is going to hit hard.
Crunching the numbers
Let’s say you took out a $500,000 loan in 2021.
That lovely long-ago interest rate of around 2.21% was good while it lasted. But once you take the leap (or are pushed) from the mortgage cliff, you can expect repayments to go from $1200 per month to $3101 each month.
Borrowers who secured a three-year fixed-rate back in 2020 and enjoyed paying just 2.61% will now face a 53% increase that pushes their monthly repayments from just over $2000 to almost $3100.
A new rate increase is expected tomorrow, so things may be about to get more expensive.
What kind of parachute can you pack?
What can prepare you for mortgage repayments that might be about to treble? Cut back on your daily lattes? Get a second (or third) job? Tough times are undoubtedly coming for many Aussie households and although better budgeting can make a positive difference, household incomes may still be stretched.
Switching to a better rate now is one smart strategy. Starting to shop around for a better home loan deal is recommended. There are still a few cashback deals out there, but be quick, as most lenders have recently put an end to them.
Cash rate predictions from the ‘Big 4’ banks
ANZ: Peaking at 4.60% by August 2023. Dropping to 4.10% by end of 2024
CBA: Peaking at 4.35% by August 2023. Dropping to 3.35% by November 2024
NAB: Peaking at 4.60% by August 2023. Dropping to 3.10% by November 2024
Westpac: Peaking at 4.60% by August 2023. Dropping to "below 3%" by end of 2025
The bottom line
The cash rate is expected to go up before it goes down. But, really, it won’t go up forever.
The best you can do to get through this tough financial time is:
look at your household budget and trim where you can
explore whether debt consolidation may be a good strategy for you
negotiate payment plans if you are dealing with debt that’s dragging you down
get emotional support from friends, family and professional services – and look after your mental wellbeing.
Go deeper: How to ask your lender for a better deal
Financial disclaimer
The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.
