The mortgage cyclone ripping through household budgets

New consumer research from Mozo uncovers that many Australians are seeing large amounts of their monthly income swept away by home loan repayments, in what’s being dubbed a ‘mortgage cyclone’. 

Of those surveyed, 1 in 6 (17%) Australians report spending 40-60% of their monthly household income on their mortgage, while 5% of homeowners are paying more than 60%.

This figure is far and above what’s known as mortgage stress – spending more than 30% of your income to make repayments, which a shocking 39% of Australians are reportedly doing. 

WATCH NOW: Mozo spokesperson, Rachel Wastell on ABC Breakfast talking about the mortgage cyclone

Mozo money expert Rachel Wastell says that the effect of twelve Reserve Bank of Australia (RBA) cash rate rises doesn’t come as a surprise and that people feeling the pressure of rising repayments should look towards refinancing. 

“Spending half of a household’s monthly income on a home loan may seem staggering, however, the shift from the Covid-era of ‘free money lending’ and ultra-low rate loans to much higher rates in such a short space of time, means that this stress is not entirely surprising,” Wastell said. 

“For borrowers struggling with rising repayments that are now devouring half their paychecks, it pays to call your lender and see if you can get a better deal.”

Of those surveyed, almost 1 in 3 (31%) admitted they had never refinanced, despite having a home loan for over a decade. This presents an opportunity for some borrowers to negotiate a better rate, especially if their Covid-era fixed rates are due to end. 

The cost of falling off the fixed-rate cliff 

As thousands of low fixed-rate home loans are due to come to an end in 2023, it’s important to understand how the significantly higher variable home loan rates will affect borrowers' pockets. 

According to Mozo's analysis, switching from a fixed rate starting with a ‘2’, to one starting with a ‘6’, could equate to an extra $780 per month in mortgage repayments on a $350,000 loan over 25 years. For those with a $1,000,000 home loan over the same term, it could mean you’re spending an extra $2,229 each month. 

The survey discovered that for 2 in 5 Australian homeowners, a rate change like that was already their reality, switching from a fixed rate starting with a 1 or 2, to a variable starting with a 5 or 6. 

For some, however, the picture is worse. 

The survey also found that a further 5% of Australian borrowers had switched from a fixed rate starting with a 1 or 2, to a variable rate of over 7% p.a. 

That would mean borrowers with a $500,000 mortgage would have to find an extra $1,430 each month over a 25-year loan term, or $2,144 each month for borrowing $750,000.

According to the survey results, 37% of Australian borrowers say they’re struggling to find hundreds of dollars more each month to meet their new repayment obligations, with 1 in 6 now paying $1,000 more per month. 

If your fixed rate is ending soon, calculate how much your repayments will change using Mozo’s fixed-rate ending calculator.

Homeowners may see rates drop before their fixed-rate period ends 

For the 23% of homeowners surveyed whose fixed rates aren’t ending this year, and haven’t felt the sting of the current variable rate environment, there may be some luck on the horizon, says Wastell. 

“If the major banks are right, it looks like we’ll see rates drop late next year,” she said, “Westpac, ANZ and NAB are all betting on a rate cut from September onwards, and the latest cuts to one and two year fixed rate home loans across the market support this view.

“We’re also seeing cuts to variable rates, like NAB’s 96 basis point cut to its base variable rate home loan for those making principal and interest payments, and the growing number of home loans in the Mozo database starting with 5.”

Low-rate home loans starting with a ‘5’ 

These are some of the lowest rates in the Mozo database, as at 3 October 2023 for owner-occupiers with a loan-to-value ratio (LVR) of 80% or less. (This is based on principal and interest on a $400,000 loan):

• Homeloans360 Owner Variable Home Loan (Plus) | 5.54% p.a. (5.54% p.a. comparison rate*)
• Pacific Mortgage Group Standard Variable Home Loan | 5.54% p.a. (5.54% p.a. comparison rate*)
• Teachers Mutual Bank Your Way Basic Variable Home Loan | 5.64% p.a. (5.70% p.a. comparison rate*)
• Tic:Toc Variable Home Loan | 5.69% p.a. (5.70% p.a. comparison rate*)
• Reduce Home Loans Basic Home Loan | 5.69% p.a. (5.71% p.a. comparison rate*)

Explore more of your options by doing a home loan comparison with Mozo today, or check out some of the featured home loans on offer below.