Lower house prices could trap borrowers in expensive mortgages

Tindall says those with less than 20 percent equity and looking for a better interest rate should weigh whether the interest savings on a new loan would outweigh the cost of mortgage insurance from new lenders.

Existing borrowers continue to pay a “loyalty tax,” as lenders often charge new mortgage customers less interest.

Figures from RateCity show that someone who took out a mortgage at the end of 2019 at the lowest average rate of the Big Four banks would be paying 0.89 percentage points more than a new customer today.

“Take a look at what your bank is offering to new customers, but also what other lenders will offer you. If it’s lower, pick up the phone and ask the bank to lower your rate,” says Tindall.

The most competitive rates for owner-occupants start at a 3, and those borrowers with a 4 or even a 5 should ask themselves why they’re paying so much, he says.

Charging

Some lenders have yet to disclose whether they intend to pass on some or all of the Reserve Bank of Australia’s (RBA’s) official August rate hike. That means there’s a danger that someone might refinance at a seemingly competitive variable rate, only to see the lender quickly raise that rate.

Figures from RateCity show that among the lenders that have acted on the August increase, the best variable rates available for those with deposits of 20 percent or more are Bank of us, at 3.29 percent, and P&N Bank and G&C. Mutual, each at 3.34 percent. penny.

The RBA is expected to continue to raise the cash rate, which lenders typically transfer in full to their adjustable-rate mortgage customers.

The central bank has raised the cash rate at each of its monthly meetings since May, from 0.1% to 1.85%. The last three increases were 0.5 percentage points each, as it seeks to curb rapidly rising inflation.

Economists expect another 0.5 percentage point increase in September, with the cash rate peaking towards the end of this year or early 2023, between 2.5 and 3.5 percent.

• The advice provided in this article is general and is not intended to influence readers’ decisions about investments or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.