Home loan mistake 86% of Aussies make
With the Reserve Bank of Australia (RBA) hiking its cash rate by 0.5 percentage points to 2.35 per cent - and more increases on the way - many Australians are naturally anxious about defaulting on their home loan.
As many as 65 per cent - or two-thirds - of Australian home owners are concerned about defaulting on their home loan payments as a result of the increased cash rate, while almost a third claimed to be very concerned, new data from financial services group Aussie shows.
Despite the high anxiety, however, as many as 85 per cent of Australians have not taken any action on their home loans and are potentially losing thousands in savings.
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In an interview with Yahoo Finance Australia, Aussie Home Loans spokesperson Benjamin Slater revealed that while many were worried about cost-of-living pressures and defaulting on their mortgage, only a handful had made moves to investigate options that could improve their financial situation, such as refinancing.
"One thing that concerns us is people are paying too much," Slater said, adding that many mortgage holders were in fact worse off financially by not reviewing their home loans.
Aussie's research, which was conducted to understand how increased interest rates were affecting Australian mortgage holders, showed that as many as 75 per cent of Australians were actually unsure how the RBA cash rate increase impacted their household budget.
Furthermore, one in five (21 per cent) of Australian homeowners with mortgages didn't know at which cash rate they would go into "significant mortgage stress".
The research also showed almost three in 10 Australian mortgage holders (28 per cent) did not consider that the cash rate would increase at all when budgeting for a home loan, despite having to account for it in their home loan assessments.
Another 38 per cent of mortgagees only budgeted for the impact of a cash rate of 3 per cent or less.
Consider refinancing your loan
One of the key things most Australians don't consider is refinancing their loans.
While it may seem counter-intuitive to do so with rate hikes on the up, Slater stressed that it was always best to review your home loan to check its competitiveness by comparing future against current rates.
Slater explained that homeowners needed to keep an eye on their rates, whether fixed or variable, and to approach a broker for a mortgage health check.
"Every two to three years, look to have a chat with a broker to see what is out there," he said, further stating that home owners could possibly save as much as 1 per cent in a year.
While 1 per cent may not sound like much, this would translate to savings of about $4,000 a year in interest for a mortgage of $400,000.
Newcastle couple's move a 'no-brainer'
Gavin and Laurel, a husband and wife who work as a digital fundraising manager and community radio presenter in Newcastle, NSW, have shared how refinancing is saving them hundreds a month.
The couple, who moved to Australia from New Zealand with their two children, initially rented a house in Newcastle seven years ago.
Five years ago, Gavin and Laurel decided to purchase the house and had refinanced just as interest rates were going up.
"We approached a mortgage broker who was very helpful and understood our financial goals," Gavin told Yahoo Finance Australia, revealing that they were coming off their fixed rate in July.
"He gave us three options ... one was a no-brainer and it was going to save us hundreds of dollars every month."
Gavin explained that despite the rate hike, they managed to secure a rate with a new lender that was almost the same as the old rate of 4.2 per cent, but also secured a rate of under 4 per cent for the variable portion, which ended up being a better deal overall compared to the rate from their previous lender, which was over 5 per cent.
Home loan health check
Aussie's research also indicated only 14 per cent of mortgage holders had been on the front foot, revisiting their home loans as soon as the first cash rate rise happened in May this year.
With that in mind, Aussie suggests several ways Australian households can avoid mortgage stress:
Stop, look and ask - always know what your current rate is and, if it's fixed, ensure you know when it ends
If you've avoided financial literacy, now is the time - it's the gateway to managing - or better, avoiding - financial distress
Do some calculations - be one step ahead on what you can afford for repayments and what amount would put you on the path to financial strain
Practice a mindful money approach, paying attention to your full financial position
Refinance to a home loan with low or zero fees
Take advantage of refinance cashback offers
Consider an offset account to reduce the amount you pay in home loan interest
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