SUNRAYSIA’S home owners breathed a temporary sign of relief last week after the RBA decided to hold the cash rate for the fourth month in a row.
However, millions of fixed-rate borrowers across the country could soon be feeling extra pressure as their loans begin to reach end of term.
Compare the Market’s economic director David Koch said many people on a fixed rate may soon feel the pain of 12 cash rate rises after enjoying ultra-low rates for several years.
“If you’ve had a fixed rate loan, there is a good chance that you haven’t had time to acclimatise to higher interest rates,” he said.
“It’s been hard enough for families getting used to the higher cost of living, groceries and power prices.
“For borrowers about to feel the interest rate grenade in one huge hit as their fixed rate expires, it could be a devastating blow.”
The current official cash rate sits at 4.10 per cent, with the average variable rate home loan at 6.61 per cent.
But according to Mozo, the average big four banks’ variable rate is currently 7.20 per cent.
Both the current figures are well up from May 2022’s average variable rate of 3.02 per cent.
Data from Compare the Market showed that Australians with a $750,000 mortgage on a variable rate could already be paying $1,814 more each month than they were at the start of May 2022.
The average interest rate for individuals with a three-year fixed rate home loan was 3.67 per cent at that same time, but is now up to 6.26 per cent.
Mr Koch said the best way to mitigate the interest rate grenade was to find a better rate.
“Ask your lender how much you’re going to be repaying when the fixed rate comes off, so you don’t get blindsided with a ‘back book’ rate,” he said.
“Often the best deals are reserved for enticing new customers, so it’s worth asking your lender if they can do better but be prepared to walk.
“Spend some time comparing offers from different lenders. In some cases, making a switch could save you thousands over the life of your loan.”
Ray White chief economist Neribee Conisbee said last month’s increase in inflation reminded homeowners that there is still some way to go and there was still potential for more rate rises.
“For now, market pricing for the peak continues to change from week to week, as does the timing of cuts,” she said.
“Globally we are continuing to see rates on hold however there remain concerns around inflation remaining sticky.”
