The school kids are settled, and no doubt you’re back in the full swing of things. But the year really begins on Tuesday, when the Reserve Bank will meet for the first time in 2023 to decide our financial fates yet again.
Almost 100 per cent of experts and economists expect the RBA to hike rates for the ninth month in a row, according to Finder’s RBA Cash Rate survey. And 91 per cent of them predict an increase of 25 basis points.
There are the 15 per cent of households considered ‘extremely at risk’ when it comes to their mortgages.Credit:Jason South
Three-quarters of the panel then forecast a pause in March, while the Reserve Bank assesses the effectiveness of its interest antics. Ultimately, economists expect a peak interest rate of 3.75 per cent, which means at least one further hike this year.
This is bad news indeed when the number of mortgage holders considered ‘at risk’ of mortgage stress – when your repayments consume more than one-third of your income – has pushed above the long-term average. Roy Morgan data puts this at 22.8 per cent, the highest in a decade. Then there are the 15 per cent of households who are considered ‘extremely at risk’.
But whether you are a little or a lot stretched, what can be done? Here are some things to try.
Step 1: Forget the RBA – it’s your lender that determines your rate deal.
Pick up the phone and tell your lender you know all about the discounts being dished out by the big four banks. Sharper still are the rates available from smaller but still bank-backed lenders.
Your benchmark for bargaining is way down at a variable 4.56 per cent. This is a loan from online lender Tic:Toc that is only a smidge below next-rung lenders G&C Mutual Bank (4.59 per cent), Adelaide Bank (4.63 per cent), MOVE Bank (4.64 per cent) and Bank First (4.69 per cent).
I have only included loans that offer offset accounts. Worked well, these are a tool that can see you debt-free years early.
But back to that phone call. Name one of the above lenders, say you are thinking of swapping, and see what happens.
Pick up the phone and tell your lender you know all about the discounts being dished out by other banks.Credit:Paul Rovere
Step 2: Should that approach bear no fruit, jump on your online banking and search for a ‘mortgage discharge form’ or something similar.
This notifies your lender of your intention to do just that. You will need to nominate a lender to take over your debt – and a date.
Then you wait. Chances are the lender’s mortgage retention department will then drastically sweeten any deal offered by the phone consultant – most lenders have issued ‘stem-the-exodus’ directives as tens of thousands of Aussies switch to better deals each month.
Now, this above approach is – unfortunately – all that you have if you are stuck in what has been dubbed ‘mortgage prison’, where you are locked in your existing loan by insufficient income or lower house prices.
But your existing lender will not and does not have to do a fresh loan assessment in this circumstance, and an overnight interest rate cut will just give you instant expense relief.
Note that if you hear nothing, and they do not budge on rate, your mortgage discharge form will just lapse if there is no other lender lined up to take over your loan. There is no risk except failing to get a discount.
Step 3: If that approach fails too, you need to be free to actually take up one of the likely far-better home loans. You need a strategy – if you are in it – to get out of mortgage prison.
The trouble is that 300 basis points of rate rises mean repayments take a bigger chunk of your possibly stagnant income. And that income will be stress tested for another 300 basis points under the loan rules.
Anything you can do to get your income up will help. But getting your expenses down is a faster win. My advice is to cut every expense possible for three months before applying for a loan.
If your loan is now worth more than your home, known as being in negative equity, this is a bad situation indeed. And you will not qualify for a new loan without a big cash top-up.
Your fightback technique is to over time get that loan down. Property prices going up would, of course, assist greatly in this.
The free ways to do this are to work your offset account like a pro, mobilising every dollar to your name to reduce your mortgage, and to get that better deal, as above.
It cannot hurt to just keep calling and keep threatening to leave in this highly competitive market. And if you are seriously struggling with repayments, ask for financial hardship concessions.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me. Follow Nicole on Facebook, Twitter or Instagram.
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