Borrowers urged to shop around as lenders pass on rate hike
The RBA raised the official cash rate by 50 basis points to 0.85% in June1, the second interest rate rise in two months, and the largest in two decades.
But as home loan costs rise, new research by Mortgage Choice has found six in ten borrowers are reluctant to seek out a better deal through refinancing.
The survey of 1000 home loan borrowers revealed over 60% viewed refinancing as a “hassle I’d like to avoid” and 61% said they are “cautious about refinancing in case I end up worse off”.
Mortgage Choice national sales director David Zammit urged borrowers to speak to their broker about reviewing their current home loan, even if they’re currently locked into a fixed rate.
“If you’ve fixed your rate in the last couple of years and your fixed-term is coming to an end soon, you’ll need to decide whether you want to fix your rate again, or whether you’d rather choose a variable rate home loan,” Mr Zammit said.
Rising costs continue to add up
The reluctance to refinance comes as 80% of respondents identified their home loan as their biggest monthly expense.
For a borrower with a $500,000 mortgage, the latest interest rate hike has added around $136 to the cost of their repayments each month, and more than $200 a month for a $750,000 mortgage.
Additional monthly cost
In this calculation, the borrower is an owner occupier paying principal and interest with 30 years remaining on their loan. It assumes an average variable interest rate of 2.86%, according to April RBA figures2. The calculation does not factor in loan fees and charges, or any principal paid down over time.
Prices are also rising across a range of other essential household items, such as fuel, food and power.
Commsec estimates the average family spends $275.66 a month to fill up the car with petrol, an extra $54 a month compared with the start of the year3.
Data provided to Mortgage Choice by Frugl, an app that tracks changes in grocery prices, shows the cost of many pantry items have skyrocketed more than 20% this year.
It found cooking oils are up 10-30% in price due to global shortages in palm oil and soybeans, while instant coffee has surged as much as 50%.
Flash flooding along Australia’s east coast has also hit fresh fruit and vegetable prices4, such as lettuce and tomatoes.
AUSVEG communications manager Shaun Lindhe said some growers had entire crops wiped out just days before harvesting was due to start.
“There has also been damage to machinery, fencing and other critical farm infrastructure, and severe disruptions to paddocks, including losing topsoil, that will not only impact product currently in the ground, but also future crops where paddocks were being prepared for winter crops,” Mr Lindhe said.
With the cost of living tipped to rise further in the months ahead, Mr Zammit said refinancing could be a way to lessen the burden.
“With interest rates expected to rise several times this year, I recommend that anyone with a home loan speaks to their broker about reviewing their current home loan,” he said.
“You may also be able to secure a cash back deal, consolidate existing debts. Refinancing your home loan can also be a pathway to investing.
“Many borrowers save hundreds or even thousands of dollars a year by switching.”