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Grim sign for Aussie mortgage holders: ‘Last ditch effort’

One in five mortgage holders are now paying the bare minimum repayments on their home loan.

RBA governor Michele Bullock and house
RBA interest rate hikes are continuing to squeeze borrowers. (Source: Getty/AAP)

More than half a million Aussie mortgage holders have switched to interest-only repayments to ease budget pressures. The Reserve Bank of Australia’s (RBA) rapid interest rate hikes have added thousands of monthly repayments and many are struggling to keep up.

A Finder survey found one in five mortgage holders - equivalent to 693,000 people - had moved over to interest-only on their mortgages over the past two years. A further one in eight say they have extended their loan term in the last 12 months to bring down their repayments.

The research found 6 per cent of the 1,062 people surveyed were currently still only paying the bare minimum in a “last ditch effort” to avoid falling behind on their repayments.

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Finder home loans expert Richard Whitten said millions of Aussie households were now in “survival mode”.

“Such a large portion of people’s earnings are allocated to their mortgage and spare cash has been extinguished,” Whitten said.

“A growing number of Aussies are struggling to make their mortgage payments due to cost-of-living pressures and can’t continue on the path they’re on.”

Are you struggling with higher mortgage repayments? Contact tamika.seeto@yahooinc.com

The value of home loans that are 30 to 89 days overdue has risen to 0.66 per cent, recent APRA data found. This is still, on average, below what it was in the year before COVID at 0.73 per cent.

ANZ and NAB have recently pushed back the timing of when they expect the first RBA rate cut to mid-2025. ANZ expects the first cut to come in February 2025, while NAB has forecast May 2025.

CBA and Westpac economists are more optimistic and still believe the RBA will cut earlier in November 2024.

Financial markets believe there is a one-in-three chance the RBA could hike rates at its August meeting. For a $750,000 home loan, another 0.25 rate hike would increase repayments by $112 and make the total increases since the start of the hikes $1,927.

The average new owner-occupier home loan has hit a record high as property prices continue to soar, with the average borrower taking out a debt of $626,055 in May.

That’s the highest level in the Australian Bureau of Statistics (ABS) records, despite the fact that the cash rate is still sitting at its highest level in more than a decade.

New South Wales has the largest average mortgage at $767,584, while Victoria sits at $601,891 and Queensland at $586,627.

RateCity research director Sally Tindall said the data was “astounding”, particularly considering the average new home loan rate is 6.27 per cent.

“Over the last two years, buyers have seen their maximum borrowing capacity plummet, in some cases by hundreds of thousands of dollars, as a result of the RBA hikes, and yet the average new loan size has hit a new record high,” Tindall said.

Borrowers struggling with their repayments are being urged to seek financial hardship help from their bank.

If you're feeling overwhelmed and need help dealing with financial stress, you can contact free advice and counselling from the National Debt Helpline. You can call 1800 007 007 between 9.30am and 4.30pm Monday to Friday, or reach out to Mob Strong Debt Help on 1800 808 488.

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