The interest rate most borrowers fear: Rate rises on the horizon
Mozo’s research finds when home loan rates hit 5.00% most borrowers will be in serious financial distress
23 May 2022
- 8% of borrowers believe any rate increase would put them under serious financial stress
- By the time interest rates hit 5%, almost two thirds (64%) of borrowers said they would be under serious financial stress
- More than half (55%) of borrowers have not stress tested their ability to pay monthly mortgage repayments at a higher interest rate
- 59% of homeowners fear losing equity in their home due to falling property prices
- Currently the best variable home loan rates in Mozo’s database are through online lenders, with the leading rate from Reduce Home Loans at 1.79% which is 124 basis points below the average variable home loan rate of 3.03%
With the RBA set to meet on Tuesday amid rising inflation and cost of living pressures, Mozo’s latest research has found that almost two thirds (64%) of borrowers would be under serious financial stress if their home loan interest rate hit 5%.
The research comes in the wake of the latest inflation figures from the ABS, which shows the consumer price index (CPI) rose 5.1% over the 12 months to March and growing speculation around an official interest rate increase tomorrow. It also comes as one major bank is forecasting the cash rate to hit 2% by June 2023, which could see an 190 basis point increase to the current average variable rate of 3.03%, taking it to almost 5%.
“With the last increase in the cash rate over 11 years ago, many borrowers will have never experienced a home loan interest rate hike so it’s little wonder many people are worried about the impact it could have on their finances,” says Tom Godfrey, Mozo spokesperson.
Worryingly, Mozo’s research found 8% of borrowers believe any rate increase would put them under serious financial stress and more than half (55%) of borrowers have not stress tested their ability to make repayments at a higher rate.
“It’s never too late to stress test your ability to make repayments at higher interest rates. Something as simple as putting your home loan amount into a mortgage calculator to check what your repayments might look like as rates rise, can help you to budget and reduce your stress,” Godfrey says.
Mozo also found more than half (59%) of homeowners fear losing equity in their home due to falling property prices.
“Losing equity in your home could become a problem if you’re forced to sell or refinance but if you’re able to hold on, continuing to pay down your principal is one of the best safeguards you can put in place,” says Godfrey.
Currently the best variable home loan rates in Mozo’s database are through online lenders, with the leading rate from Reduce Home Loans at 1.79%, which is 124 basis points below the average variable home loan rate of 3.03%
“With some small lenders still offering variable rates more than 100 basis points below the current average variable rate, comparing what’s on offer and switching to the best deal you can find might help to offset future rate increases,” says Godfrey.
Visit Mozo’s rate change calculator to see how much your repayments could be as rates increase.