There was an ABC news article this week (link here) talking about the record number of Australians selling investment properties and refinancing mortgages, due to mortgage stress.
We’ve looked at the effect of interest rate rises on home loan repayments and the reasons for stress are pretty clear. Since this time last year, the RBA has increased official cash rates 11 times from a record low of 0.10%, to the current rate of 3.85%.
This means that every time that interest rates rise, mortgage repayments increase. Perhaps in relatively small increments, but the total effect is significant, as we outline below:
In WA, the average home loan has been stated as $500,000:
- When rates were at their lowest, repayments on a $500,000 home loan over 30-years at 2.5% were $1,975.60
- Fast forward 12-months (or so) the repayments on a $500,000 home loan over 30-years at 6% are now $2,997.65.
This equates to a monthly increase of $1,000 or $12,000 per annum.
Compare this to the average home loan in NSW, which is stated as $752,000:
- Repayments on a $752,000 home loan over 30-years at 2.5% were $2,971
- The same $752,000 home loan over 30-years at 6% now has monthly repayments of $4,508
This equates to an increase in the monthly repayments of $1,537 or $18,444 per annum
There would be many loans in across Australia that would be $1M (+)
- Repayments on a $1,000,000 home loan over 30-years at 2.5% = $3,932
- Repayments on a $1,000,000 home loan over 30-years at 6% = $5,985
This equates to a monthly increase of $2,053 or $24,636 per annum.
Any of the above examples require a significant increase in before tax dollars to fund the increased repayments, or a significant sacrifice of other expenses to fund the increase.
What options are available?
If you have had your loan for some time, you should definitely make sure that your bank has you on their best rate. You can do this by calling the bank, or your broker.
You could also consider fixing all or some of your interest rate. We’ll talk about the pros and cons of rate fixing in a future article.
Want to chat? If you have concerns about your rate, give our home loan experts a call 6246 2680
