Can mortgage rate cuts ease the squeeze for “over-indebted” Aussie homeowners?

Tuesday 19 September 2017

Article by Kelly Emmerton

“Over-indebted” home loan borrowers could benefit from fiercer competition, after Mozo data showed 31 lenders slashed variable rates in August and September, and 1 in 3 lenders cut fixed rates.

Can mortgage rate cuts ease the squeeze for “over-indebted” Aussie homeowners?

After the dust settled on the latest rate changes, there are 71 lenders in Mozo’s database offering variable rates below 4.00%, while the lowest fixed-rate on the popular 3 year term was just 3.69%.

Mozo home loan expert Steve Jovcevski said there were some particularly good fixed rate offers around lately.

“Investors looking at interest-only loans can pick up some fixed rates even lower than the variable rates on offer at the moment. And many one-year fixed term loans around now allow you to still use an offset account, which is a great way to save money on interest,” he said.

Most of the cuts were for both owner-occupiers and investors making principal and interest repayments, as lenders try to entice reliable borrowers for the spring property season.

These lower home loan rates could be good news for a great many Aussie borrowers, after ABS statistics revealed that in 2015-16, around 29% of Aussie households were classified as “over-indebted,” meaning they have three times as much debt as their annual income.

Home loan debt was key to this, as the ABS data showed home-owners with a mortgage were most likely to be indebted, particularly those in the 25-34 years and 35-44 years age brackets.

RELATED: Turning tides: banks start cutting interest-only mortgage rates

The average home loan for over-indebted households rang in at $286,400 - over four times the size of the average home loan held by other households ($59,500.) In Sydney, where property prices are significantly higher than most everywhere else in the country, those with property debt were on average $269,000 more in debt than their Melbourne counterparts.

“This suggests that part of the problem of over-indebtedness is due to sky high house prices. Combine that with low wage growth, and repayments can really start to eat up your monthly income if you’re not careful,” said Jovcevski.

ABS statistics released today revealed that residential property prices rose 1.9% in the June quarter this year. Despite an overall trend toward prices beginning to moderate, Sydney and Melbourne prices continued to rise by 2.3% and 3.0% respectively.

“Property prices are beginning to plateau, but they’re still very high and borrowers looking to get into the market really do need to be aware of their home loan costs. So these rate cuts have come at a good time,” Jovcevski said.

“Borrowers who already have a mortgage eating into their monthly budget should take a look at their refinancing options, and see if they can cash in on some of the lowered rates.”

Netting a lower rate stands to save borrowers thousands of dollars. For example, Mozo’s repayment calculator shows that on a $280,000 home loan, a rate cut from 4.17% down to 3.74% could save a borrower more than $19,000 over a 25 year loan.

So before you buy into the housing market, make sure you compare home loans and find the most competitive offer around, to keep your repayment costs as low as possible.

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