Guide to mortgage rates in Australia – Forbes Advisor Australia

The more than three million Australian mortgage owners feeling the impact of rising interest rates will no doubt be wondering when this nightmare will end.

Last year, Reserve Bank Governor Philip Low said it was “still plausible” that official interest rates would not rise until 2024, but, many rate hikes later, Australia still has some way to go until inflation returns to the 2 to 3% zone.

So where does that leave those with mortgages? According to the 2021 census, the number of homeowners in Australia stands at 6.2 million.

The figures for mortgage-free households stand at 32% (2.9 million households); those with a mortgage represent 3.3 million households or 35%.

With each increase, homeowners can expect to add hundreds of dollars to their monthly loan repayments.

In September 2022, the Reserve Bank of Australia raised the cash rate by 50 basis points to 2.35%. The move follows a 50 basis point hike three months earlier and a 25 basis point hike in May, taking the cash rate to a level not seen since January 2015.

Fears that the average variable rate mortgage will become even more expensive in the coming months will have customers looking for better deals.

Refinance numbers peak

Recent figures from ABS revealed that borrower refinancing reached a record value of $18.1 billion in June 2022.

Overly conscious customers seek to switch loans, banks have begun aggressively contacting customers to prevent them from switching to another lender.

Don’t be surprised if you get a call from your bank offering cashback and competitive rates.

For those looking for a better rate, the potential for deep discounts has never been greater as competition among lenders for borrowers is intense, especially for those looking to refinance.

You might be tempted to stick with one of the big four, but if you have a healthy equity deposit in the house, it might be worth checking out a credit union or digital lender, such as UNLOAN. or loans.com.au. For those with a fixed rate, you’ll only have to compare rates or negotiate better deals when their loan term expires.

It is important to note that low interest rates may not be available to everyone. This will largely depend on the amount of the loan, for example an amount greater than $800,000. The other criterion is your loan-to-value ratio or LVR.

Also check if there are any hidden fees associated with a low interest rate.

How much can I borrow?

The amount you can borrow differs greatly from person to person. That’s why it’s important to shop around to find the best loan for your situation.

Borrowing power largely depends on the amount of your deposit, your income, and your ability to repay your loan and meet your current loan repayment commitment.

Also keep in mind that the average person’s borrowing power has declined in recent months as interest rates have risen.

If you’re worried about future rate hikes and what you can expect to pay, using a mortgage calculator can help you figure out what your payments might look like if rates rise again.

The Refund Calculator shows how much extra you might have to pay each month as a result of a rate hike.

What are banks looking for?

Banks will look at acceptable debt ratios for any loan recipient. The deposit amount will also impact your lending power.

Remember, the higher the LVR loan-to-value ratio or the lower your deposit relative to the equity in your home, the higher your interest rate.

The bank will also comb through your bills, debts and income. The loan process will require you to provide a number of key documents to verify your identity and assess your financial situation. These include:

• 100 points of identification, usually in the form of a driver’s license, health insurance card and/or passport.
• proof of income, which will usually include two to three months of payslips.
• proof of savings, usually in the form of two to three months of bank statements.
• Assets you own, such as a car.
• Debts, credit card debts, other loans.
• Some may ask for a list of your regular monthly bills, such as groceries, utility bills, school fees.

What is the loyalty tax?

It sounds crazy, but a loyalty fee is the premium you pay for staying with a lender when that same lender offers a lower interest rate to their new customers.

If you plan to stay with the same lender, it is advisable to call and refinance your loan.

Before refinancing your loan…

If you are about to refinance your loan, call your lender by phone. Ideally, start the conversation a few weeks before your loan expires.

An hour or two on the phone is worth talking to them and asking for a better deal. If you can negotiate a better rate, you won’t have to go through all the document checks and spot checks listed above. If your bank doesn’t give you a better deal and you can find one elsewhere, the savings are worth transferring.

It’s in your lender’s best interest to retain customers rather than move you to another lender.