Aussies lose half their income to home loan repayments: is refinancing an option?

An avocado cut in half

Australian homeowners are being bled dry by the highest interest rates in more than a decade, according to data from mortgage broker, Aussie. 

Over half admit they spend at least 50% of their income on home loan repayments and 16% say they’re barely making their repayments at all. 

Infographic representing Aussie's data on how many borrowers are paying more than 50% of their income on their home loan.

Aussie’s chief operating officer Sebastian Watkins says its data spotlights the financial stress facing Australian homeowners resulting from 13 cash rate hikes since May 2022. 

“This new Aussie data reflects the concerning financial stress faced by too many Australian homeowners as a knock-on effect from the interest rate increases,” he said.

“The cash rate is at its highest point in over a decade, and our data confirms that households are significantly burdened by the increase in their mortgage repayments.

“This is forcing many Australians to alter their lifestyles dramatically, and despite this over a quarter of homeowners are postponing refinancing in hopes of future interest rate reductions.”

Cutting costs to handle this higher cost of living

Over the past year, 55% of homeowners say they’ve cut back on holidays, groceries, and going out, according to Aussie. 

The cost-cutting measures Australian homeowners are turning to include taking steaks and seafood off the menu (15%), dropping their gym memberships (36%), and spending less time at the hair salon (37%).

A further 37% say they’ve cancelled their streaming services and subscriptions, almost half now choose to cook at home more often, and a small portion have given up their hobbies. 

Health, entertainment, social activities, and the small conveniences that give us more time in the day have all taken a hit, just to ensure borrowers can balance repayments and the cost of living

So, why aren’t Australians refinancing? 

Aussie reveals that a quarter of Australian homeowners are waiting for interest rates to come down before they refinance (25%). The trouble is, we don’t know exactly when interest rates will come down. It could be at the end of this year or some time in 2025. 

Being proactive instead of reactive could help save you money 

Instead of waiting for rate cuts, Australians are being urged to be proactive. 

“In this higher rate market, borrowers need to be actively pursuing all avenues to alleviate their mortgage stress right now – and not waiting on a potential drop in rates,” said Watkins.

The Mozo Home Loans Report 2024 found the average monthly repayment rose $2,207 from May 2022 to March 2024, as the average variable rate rose 3.81%.

While you won’t necessarily recoup the whole repayment hike, a rate-and-term refinance could help to put more cash back in your pocket – provided you’re able to find a lower interest rate or qualify for a refinance home loan

The report also found that those who compare rates every six months had a lower home loan interest rate on average than those who have not compared since getting their home loan – 6.14% p.a. versus 6.52% p.a. (correct as at 13 March 2024). 

The difference 0.38% makes on repayments works out at $118 per month, or $1,416 more per year, according to Mozo research.  

A lower average interest rate doesn’t necessarily mean those borrowers refinance every 6 months either. Knowing your interest rate and comparing it to what other lenders offer you or advertise can give you a strong position to negotiate your rate down. 

If you can’t negotiate your rate with your current lender or refinance your home loan, your other option is to earn an income from your home. Of course, you’d need a spare room, garage, car spot, or storage space that’s not in use. 

If you’re keen on the idea of refinancing, make sure you compare home loans to explore some of your options.