What can you do if your repayments are too high?

The Reserve Bank of Australia (RBA) has continued its trend of increasing the cash rate, moving it for the third month in a row from 0.85% to 1.35%.

According to our data, all lenders in our panel increased variable interest rates on home loans in line with the cash rate increase last month. This means homeowners with variable rates or split loans will have already noticed an increase in repayments.

On top of this, we are also seeing fixed rates increasing across the board, particularly in the shorter terms. For example, NAB recently increased one-year fixed rates for owner occupier principal and interest (P&I) loans by 1.1 percentage points and two-year fixed rates by 1 percentage point. CommBank just hiked all its fixed rates for owner occupier and investor P&I loans by 1.4 percentage points. This means people looking to refinance will find interest rates have significantly increased regardless of the type of loan you are considering.

What can I do if my repayments are getting too high?

If you find your repayments have jumped to a level you find difficult to repay, it is a good idea to review your options.

For example, speaking with a broker could help determine whether refinancing is right for you. While lenders across the board have increased rates, there are a number of cashback offers, where a lender will provide a cash payment to refinancers who make the switch. We may also be able to negotiate a better rate for you as a new customer, or for if your equity has increased.

Other ways a broker may be able to help include:

Consolidating debt: If you have loans outside of your mortgage, such as a car or personal loan, or credit card debt, you may be able to roll them into your home loan. This could result in a lower interest rate and simpler repayments.

Reviewing existing loan: If there are features attached to your home loan you do not use, it could be possible you could transition to a different loan with lower fees or interest rate.

Repricing: Your lender may be open to lowering your interest rate or fees, especially if your equity has changed since your last review or if your rate is not competitive.

Silver lining for buyers: property market cools

While home loan interest rates have been climbing, on average, house prices across capital cities have decreased over the last month. Sydney house prices dropped 1.6%, Melbourne prices dropped 1.1% and Hobart 0.2% over the month to 30 June. Brisbane has slowed with house prices growing only 0.2% over the time frame, Perth grew by 0.4%, Darwin 0.9%, Canberra 0.3%, with Adelaide showing the biggest growth of 1.3%.

This could be good news for investors and buyers as it signals decreased competition. The increase in the cash rate is also good news for savers who are likely to see increased interest rates on their savings accounts, which could help save for a deposit faster.

If you are looking to purchase, reach out to a broker to find the right loan for your needs.

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