Interest rates are expected to rise further when the Reserve Bank of Australia meets next week, with many people on edge to see how much it will hit their back pocket.
Nicola Alexander and her husband Bryan are among those waiting to see what happens.
The Perth couple work alternate weekends to pay their bills and feed their three children, ages eight to 14.
“I work on Saturdays and he works on Sundays … we sacrifice quality time with the family to manage,” she told NCA NewsWire.
Until recently, the family had a mortgage loan with Keystart, with its lowest interest rate of 4.36 percent.
Keystart is Western Australia’s government loan provider offering low deposit mortgage loans to those unable to meet the deposit requirements of major lenders.
“We had a shared equity loan where Keystart owned 20 percent of our property, so realistically our loan repayments were based on 80 percent,” Ms. Alexander said.
Although they knew their interest rates were higher than other lenders, the family never had a problem making payments, but as rates began to rise this year, they realized they needed to reevaluate their situation.
“With the help of a broker, and a few interest rate hikes later, we consolidated all of our debt,” he said.
“We now own 100 percent and are about $900 a month better off overall.”
Mrs. Alexander said that inflation and the cost of living were rising, but her income remained the same, so the family was worried about their finances.
“Our budget hasn’t changed for things like groceries, as we buy less overall,” he said.
“Insurance, rates and utilities have skyrocketed, and most months we have to request payment extensions.
“Overall, I feel like we’re pretty lucky. We have always budgeted well from a young age and lived within our means.
“But if the cost of living continues to rise at the rate it is, we may have to make some big adjustments.”
CBM Mortgages director Craig McDonald told NCA NewsWire that many economists were forecasting the cash rate to hit 3.50 percent from its current rate of 1.85 percent over the next six months.
“Obviously we’ve had a couple of 0.5 percent increases in the last two months and I think it’s going to go up 0.5 percent again in September, with a smaller 0.25 percent in the last few months before 2023.” , said.
Meanwhile, some people who secured low two-year fixed terms are now starting to get out of those deals.
“They are going to go from a rate below two percent, sometimes as low as 1.69 percent, to a variable rate that could range from 3.79 percent to more than five percent,” McDonald said.
“It is important that customers contact their broker or their bank before their fixed rate expires to ensure that they are not receiving the bank’s standard variable rate offer and that a discount from the bank’s base rate has been negotiated, since that discount difference can be more than two percent in some cases.
“It also gives you the opportunity to see what other lenders are offering and that can help you negotiate with your bank on your interest rate offer.”
McDonald said that most clients opted for variable rate loans because the gap between the fixed rates being offered and the variable rate was quite large.
A Westpac spokesperson told NCA NewsWire that the bank had yet to see an increase in the number of customers requesting financial hardship assistance.
“But we are monitoring the situation carefully and expanding our teams to better support customers,” they said.
“Our clients have saved well during the pandemic, with many building up a financial cushion to help soften the impact of rising interest rates.
“Most have built up equity in their homes as a result of rising property prices and loan payments, two-thirds are behind on their mortgages, and we have seen an increase in savings for deposits and mortgage clearing accounts.
“At the same time, the job market is strong and unemployment remains low, allowing clients to continue receiving a regular source of income.”
Westpac is also reaching out to customers who are exiting low fixed rates to discuss their options.
“For those who need additional support, our hardship team is ready to help with a variety of personalized support options,” the spokesperson said.
“The most important thing customers can do is call us as soon as possible so we can work with them one on one.
“Sometimes customers are embarrassed to call their bank, but the sooner we know there’s a problem, the faster we can find a solution to get them back on track.”
According to the Commonwealth Bank of Australia’s full-year financial results, at the end of June this year, 0.49 per cent of home loans were in default, up from 0.64 per cent a year earlier.
A CBA spokesperson told NCA NewsWire that the bank was also helping people exiting low fixed rates.
“We notify customers 42 days before their fixed rate is due to let them know what their options are, which include re-fixing their loan, splitting their home loan to be part fixed and part variable, or moving to a single mortgage. variable rate,” they said.
“We have a variety of support materials available to our customers, including tips on how to best manage your home loan in the current interest rate environment and tools like our home loan repayment calculator.
“If customers have any concerns, we encourage them to contact us as soon as possible to see how we can best help them.”