More than a million Australians are - or are about to be - plunging off the mortgage cliff, and financial expert David Koch has warned “you’re a mug” if you don’t take a simple step to pull yourself out of free fall.
It might seem like a blunt call considering all the economic factors at play that have made now one of the most financially challenging periods of a generation, something Koch plainly acknowledges. But his message comes with practical advice that could save you a pretty penny - and “only takes half an hour”.
“Anyone who comes off a mortgage cliff is a mug if they don’t go to their lender and say, ‘Hey, give me a better deal on the revert rate’,” Koch told Yahoo Finance.
The former Sunrise host and self-proclaimed “finance nerd” has urged Australians to empower themselves and has provided a simple guide to do so - one that has put some borrowers in a better position than before the much-feared “mortgage cliff”.
“I spoke to a woman who came off a mortgage cliff and her interest rate went up 2 per cent,” he said.
“She rang her lender for a discount and they gave her a discount. She ended up paying 2 per cent less than the fixed rate she was on. She didn’t go over the cliff, just because she made that phone call.”
Australians are refinancing in droves, with 450,177 mortgage holders making the call across Victoria, New South Wales, Queensland, Western Australia and South Australia, according to the PEXA Mortgage 2023 Insights Report.
But Reserve Bank (RBA) data shows about a million are already paying a more expensive variable rate and another 520,000 are headed that way in the second half of the year. Another 450,000 will follow next year.
That leaves a lot of Australians with the opportunity to jump on the trend.
Interest rate rise risk still very real
Aussie mortgage holders let out a collective sigh of relief when interest rates were kept on hold at 4.1 per cent after 12 rate hikes in as many months to curb rampant inflation.
But, after poring over the RBA minutes this week, Koch said there was no guarantee this meant interest rates were on a downward trend. In fact, he said there were signs the central bank may go against forecasts and bump them up again.
“I don’t think rates are going to come down anytime soon, but this is where the mind games come in,” the new economic director of Compare the Market said.
“If any of the economic data turns against us, [the RBA will] have no hesitation in increasing the rate.”
Now, it’s not just the labor market or consumer behaviour Australians have to worry about. There are grave concerns about what’s happening more than 7,000 kilometres away as China’s economy is destabilised by “property developers going broke”.
“The average Australian has absolutely been blindsided by the sharpest, quickest increase in interest rates in a generation,” Koch said.
“The double whammy with inflation has shocked Australian households and I can understand how frightening it is for those who haven’t had to cope with it before.”
Koch’s answer: “Plug the financial leaks in your budget.
“You’ve almost got to have a game plan on how you’re going to survive this. A lot of people will say, ‘It’s so complicated, it will take too much time’. But ringing the bank might take you half an hour and save you $10,000.
“I don’t know anyone’s charge rate out there that’s equal to $10,000. It’s half an hour well spent.”
Koch has a challenge for all Australians - mortgage holders or not - and it’s one he’s abiding by too.
“We switched health insurance three years ago and I got my wife to check if we were on the best plan as policies are going up October 1,” he said.
“We still have the best, but the next best was $60-a-month different. The worst was $300 a month. That’s a $2,500-a-year saving just by checking.”
Kochie’s challenge: 20 minutes a day to save $10k
First, get all your major expenses together. Think bills - phone, electricity, gas, internet, insurance for your car, health or home, any loans, and even small things like streaming services.
Now, you’re going to spend 20 minutes a day looking into how you can reduce that.
Can you call your provider and get a cheaper energy plan? Can you bundle your phone and internet to slash that cost? Are you paying for added extras for insurance you no longer need?
“If people spend that time for the next two weeks, targeting a particular expense and seeing whether they’ve got the best deal, I reckon they would’ve saved themselves $10,000,” Koch said.
“And that's less time than watching an episode of Home and Away.”