Hike or Pause, Cliff or Not : Mortgage Holders on the hook for thousands more each month

KEY POINTS

• Analysis from leading financial comparison site Mozo.com.au shows most mortgage holders will need to cough up thousands of dollars more every month to cover rising repayments.
• If the RBA hikes today, those on the fixed rate mortgage cliff with a loan of $750,000 will be searching for an extra $1,815 every month to cover the rise in repayments
• If the RBA pauses today, mortgage holders on the fixed-rate mortgage cliff with a loan of $750,000 will still be scrambling to find an extra $1,697 every month.
• Mortgage holders who’ve borne the brunt of the 12 rate hikes in almost as many months will feel the cumulative impact of a $1,665 increase (if the RBA hikes) and a $1,547 increase (if the RBA pauses).
• For those on variable rates,  home loans from the big four are on the more expensive side, with the seven lowest fixed rate mortgages on offer from smaller lenders and credit unions.

In the build up to what could be the 13th rate hike in just over twelve months, analysis from leading financial comparison site Mozo.com.au shows most mortgage holders are scrambling to find over $1,000 more every month to cover their repayments.

Mozo banking expert Peter Marshall says, “Given the elevated sticky services inflation, even if the RBA decides to pause, mortgage holders should be mindful that rates may remain elevated.” 

“For the Australians on the fixed rate mortgage cliff, who will fall into rates about 4% higher this year or next, it’s crucial to begin preparing for the rate rises ahead of time. For those on a low fixed-rate loan secured during COVID, it’s important to be planning ahead,” he said. 

If you’re on a fixed-rate mortgage set to expire this year, Mozo’s fixed rate ending calculator can help you find out how much more you’ll need to pay when your fixed rate term ends. It’s a good idea to prepare yourself as early as possible, so you can begin to research the best available rate, lenders and cashback offers, to make your money count for more.

“Ignoring the cumulative impact of 12 rate hikes from the RBA since May 2022 is not going to help mortgage holders manage the $1,000 or $2,000 more in monthly repayments.”

“Comparing the rates on offer from both the big four and smaller lenders could help mortgage holders mitigate the risks of any further hikes.”

If the RBA hikes, switching from fixed to variable rates could cost $1,815 more a month

If the RBA does decide to hike by another 25 basis points today, and the increase is passed on in full, those switching from fixed to variable rates with a loan of $750,000 could need to find another $1,815 every month (based on an LVR of 80% over a 25 year term).

If the RBA pauses, a fixed to variable rate switch will still cost an extra $1,697 a month

Conducting an in-depth analysis of fixed rate mortgages due to expire in 2023, Mozo experts found that even if the RBA holds the cash rate at 4.1% today, mortgage holders falling off the fixed-rate cliff will feel the pinch. 

Those switching from fixed rates as low as 2.63 per cent in 2020 to variable rates as high at 6.60% in 2023, will need to find an additional $1,697 more each month (based on a $750,000 loan with an LVR of 80% over a 25 year term).

Homeowners on variable rates are also paying thousands more 

If you’re a homeowner on a variable rate mortgage who has borne the brunt of the 400 basis points increases to the RBA cash rate since May 2022, now could be the time to consider switching to a fixed rate loan, to avoid the impact of any further hikes.

Since May 2022, a variable rate mortgage holder starting with a home loan rate of just 3.02% (on a $750,000 loan over a 25 year term, with an LVR of 80%) now needs to find an extra $1,547 every month. If the RBA hikes another 25 basis points today, this increases to $1,665.

Lowest Owner Occupier Home Loan Fixed Rates (3 Years) 

Mozo banking expert Peter Marshall stresses the need for those on the mortgage cliff, and those about to fall into variable rate territory, to be proactive in reviewing how much their mortgage repayments will change by,  to see if they can get a better deal on their home loan.

According to Mozo analysis, home loans from the big four are on the more expensive side, with the seven lowest fixed rate mortgages on offer from smaller lenders and credit unions like Australian Mutual Bank and South West Slopes Credit Union, suggesting that perhaps looking outside the major banks could help reduce your repayments.