Mortgage interest rates have hit the tragic number, with borrowers now paying as much in interest as they paid to purchase their property.
In other words, house costs have doubled.
After nine official interest rate hikes, the Big Four banks are now advertising an average variable rate of 6.24 per cent, which is almost equal to that 6.36 per cent double-debt rate.
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This means that a typical $600,000 mortgage will now attract $600,000 in interest over a 25 year period.
That’s $1.2 million out-of-pocket all up.
But the good news is there is some tricks to secure a lower rate, bringing your ultimate home loan cost down.
The not-so-secret deals and discounts
The big banks now usually disclose on their websites at least a portion of the discounts that they apply to their headline rates.
Here, the more of your home that you own, the better. The cheapest deals are available to borrowers with 40 per cent equity or more, or in other words those with debt below 60 per cent.
In these ‘happy’ homes, the average big bank interest rate is 4.92 per cent, says Mozo.
It pushes up to a 5 per cent average if you still have borrowings of 80 per cent and 5.73 per cent at 90 per cent.
So, if you’ve paid off a good chunk of your property – and/or haven’t requested your rate to be cut in a while – pick up the phone to your existing lender and ask for a discount.
What’s your script?
The above figures write it for you.
“I know that the average discount based on loan size for Big Four customers is 1.32 percentage points with 60 per cent equity, 1.24 percentage points with 80 per cent and 0.51 with percentage points.
“Please show me the love.”
But your bank might not budge. Often only new customers get the full possible savings (and many lenders are showering them with cashbacks to close the deal, too).
It might be more effective to simply fill out the ‘mortgage discharge form’ that you will find on your existing lender’s website… and call their bluff that you are about to defect to another.
You never know, you might get a call from a mortgage retention specialist, sweetening your current loan contract more than you believed possible.
The comparable, quality mortgages on the market
This column only looks at loans issued by authorised deposit-taking institutions (ADIs).
That is just a fancy way of saying they can take your cash, and not just deliver you debt.
But, vitally, it means their loans can carry genuine offset accounts.
The table below shows the five sharpest deals in the market from these quality, comparable outfits to the Big Four. And after the latest rate rise.
How does your rate compare?
You may want to nominate one of these loans on your existing lender’s mortgage discharge form I mentioned above. If you never end up getting a new loan contract with this ‘new’ lender that form will simply lapse.
You have nothing to lose.
The problem with ‘fantastic’ fixes
By late 2023, 800,000 mortgage holders are forecast to roll off insanely low fixed rates.
The problem is that these offers were designed to lure new mortgage holders across. In a lot of circumstances, they undercut the market but also masked these institutions’ sky high variable rates.
The hope was that, at the fixed period end, these people would migrate on to the far more expensive variable rates.
Fast forward two years and “far more expensive” doesn’t even describe it, thanks to the 325 basis points of rises that the Reserve Bank has also imposed.
These borrowers probably face repayment leaps of 4 percentage points or more. Some of these fixes, remember, were below 2 per cent.
And fixes today are even higher than variable rates.
It’s not so much a mortgage ‘cliff’ as a money chasm.
At the same time, it could be that these borrowers, enticed to switch lenders by cheap fixes, now cannot move lenders. Instead they’re stuck in a so-called mortgage ‘prison’ because they wouldn’t pass a current income stress test.
You now need 300 basis points of ‘fat’ in your finances to get a loan over the line.
How to ‘fix’ your incarceration conditions
Although you may not be able to get out of ‘jail’, here’s the thing: your lender doesn’t know that.
Only a new lender is required to run the income stress test which means you still might be able to improve your rate.
Call and tell whoever answers that you know that you could be on a rate that starts with a four – still – and see what they offer you.
If that’s nothing, play that ‘poker-faced’ hand and submit a mortgage discharge form.
You have nothing to lose but interest.