Home Loan Mortgage Rates

Home Loan Mortgage Rates & What The Rises Mean For You

Buying a home is usually the single most significant financial decision a person makes. With no end in sight for the predicted home loan mortgage rates rises, rethinking your home loan makes a great deal of sense. Let’s take a look at what you can do to manage your home loan mortgage rate and ensure your home loan doesn’t overwhelm you.

Home Ownership in Australia

Homeowners

According to the Australian Institute of Health and Welfare, 67% of Australian households own their own home, and over half of this number have a mortgage. That equates to around 3.3 households, which makes the current climate of climbing mortgage rates an important one for many of us. But shockingly, a recent survey suggested up to 55% of Australian mortgage holders don’t know their home loan rate.[i]

Renters

The rise in interest rates doesn’t only affect homeowners. It impacts on renters. When rates rise, owners of investment properties are often forced to increase the rent in order to cover the increased mortgage. This means renters are under pressure with either increased rent, or moving to smaller, less convenient or less well-maintained properties. It also impacts their ability to save for a deposit, thereby reducing the pool of buyers in the first home buyers’ market.

The Impact

When first home buyers leave the market, prices drop, and this is compounded by increased rates. The fear here is that some homeowners will be left with houses worth less than the mortgage on the property.

Understanding How To Calculate Your Home Loan

Interest on a home loan is calculated annually in percentage terms. This is known as the APR (Annual Percentage Rate), and then divided by the 12 months in a year.

So, if you had a loan of $500,000 at 3% interest, the cost would look like this:

($500,000 x 3%) / 12 = $1,250 per month

When the rate increases, even by what seems like a small amount, payments can increase substantially. Let’s say your interest rate is now 5%. The sums would now be:

($500,000 x 5%) / 12 = $2,083.33 per month

For most people, finding an additional $800 odd dollars a month to cover the home loan, along with the increased cost of fuel, electricity and food, can become a challenge.

Positive Action

It may seem like it’s all doom and gloom in relation to mortgage rates, but there are a few things you can do to reduce the impact.

1. Shop around. Finding the best rate has never been more important. Connecting with a good mortgage broker is a great way to find out what all the different lenders are offering. And they will provide advice on which lender, and what type of loan, is best for you.
2. If you don’t ask, you don’t get, so don’t be afraid to approach your lender and ask if they can do you a better deal. With borrowers shopping around at the moment, they won’t want to lose loyal and reliable customers, so you may get lucky. Even if you only get a reduction of .1%, it’s better in your pocket than the banks’.
3. If you don’t already have one, consider a Mortgage Offset account. Check out our article on Maximising your Mortgage to find out a little more about how these accounts work. Again, it might only offset a small portion of your loan, but every dollar counts. A mortgage offset account for your pay is a great idea, but also consider any money you have in interest bearing accounts or term deposits. If the interest rate on your mortgage is higher than the rate you are achieving on savings, it’s a no-brainer.

The most important thing you can do in relation to your home loan rate is stay engaged. Make sure you know where you stand, and don’t be afraid to talk to your bank, accountant or financial advisor if you are struggling.

If you are concerned you’re not making the most of your mortgage, or you are struggling to keep up with the rate rises, Manly Financial Services have the knowledge and experience to help you. Give us a call on (02) 9976 3388, or contact us via the below link.

Interested in knowing more?

References:
[i] https://www.aihw.gov.au/reports/australias-welfare/home-ownership-and-housing-tenure