Last Tuesday the Reserve Bank of Australia lifted interest rates for a record ninth consecutive meeting.
Repayments on a $500,000 loan have already increased nearly $1,000 per month in 12 months.
The RBA is attempting to cut inflation by reducing economic activity, and acknowledge that the increase in rates is hurting and putting a squeeze on household budgets.
As the cost of living and loan repayments increase a lot of households are cutting down on discretionary spending.
There is no end in sight yet as to when the RBA will pause or stop increasing interest rates. This will depend on a number of factors such as evidence of a reduction in discretionary spending, wage increase pressures, supply chain shortages and Government spending.
Nine consecutive rate rises have had a significant effect on borrowers beyond recent first home buyers who took on large debts at rock bottom rates. The RBA governor, Philip Lowe acknowledged the “painful squeeze” on households due to higher interest rates and the rising cost of living.
It’s not just the increased costs of servicing a mortgage that is weighing on household budgets but also cost-of-living increases.
People are paying more at the supermarket, at the petrol pump and for utilities.
Recently a couple came to us with the aim of getting a loan that would reduce their servicing costs.
Their mortgage repayments had increased by $800 per month, that’s almost $10,000 per year, a significant amount for most households. And this is even before the Reserve Bank’s latest rate increase of 0.25 per cent.
With each loan repayment increase they have had to make difficult decisions about where to spend their dwindling discretionary funds.
The couple had been with their bank for many years but the constant increase in interest rates and after having been told by a relative that they were able to reduce their mortgage costs by restructuring their loan through Smart Mortgage, they came to see us.
We assessed their situation and, thanks to our ability to select the most appropriate solution from a large panel of lenders, we were able to refinance their loan and reduce their mortgage costs with the added benefit of a $4000 cash bonus.
Since the beginning of this year we have been helping more of our existing client as well as new customers restructure their debts and reduce the amount of interest paid.
We are finding that more borrowers are realizing that dealing with a broker who can offer multiple solutions from various lenders is the most effective way to get a cheaper rate.