If you’re like most Australians in recent months, you’ve probably been seeing (or actively Googling) a lot about rising interest rates, falling house prices and the phrase ‘mortgage stress’.
Whether it’s considering a loan modification, exploring refinancing options, or finding small but accumulating costs in your budget, we’re here to help you understand what steps you can take to give yourself some breathing room and help you stay on top.
How to make sense of what’s been going on
Most people are familiar with the terms being thrown around every day but don’t necessarily understand how interest rates, cash rates, and inflation are all tied together to create this storm in a teacup that we’re currently experiencing.
If you’d like to get your head around how all this works and why it’s impacting you, the RBA does a good job of explaining this very dry topic. Make a cup of tea and sit down to read here.
Feeling the pressure
Here at SF, we’ve seen an influx of queries about people’s current home loan interest rates and potential refinancing options. There’s a lot of stress from recent home buyers, in particular those who bought a property when interest rates were very low and are now seeing increases to their interest rate above what they anticipated. Those on a fixed rate mortgage are also concerned about that ‘fixed rate cliff’ approaching.
The main concerns we’re hearing are fears of being locked into a current loan by not being able to change lenders or refinance or the risk of defaulting/struggling to make repayments.
Don’t panic – we got you!
What are my options?
The good news is that there’s a range of things you can do to help ease the pressure on your budget right now from big actions to little ones:
Consider a loan modification.
Your broker can see if your current lender can offer a modification to your loan to get you a better deal. This may include changing the length of your loan term, or changing to interest-only repayments for a set amount of time. Talk to your broker, or lender to see what alternatives and options are available.
Refinance or consider changing lenders:
Call your broker – any good broker won’t charge you for the time to chat about your current situation.
Brokers often have a wealth of information and experience and can discuss your options with you before potentially ringing around to see what they can do. They can negotiate with your current lender, or examine alternative lenders.
Refinancing your loan (if possible) may allow you to reduce your repayments with a reduced interest rate or change your loan type from a fixed or variable interest rate which can change your minimum repayments. Some lenders also offer cashback incentives which may help reduce the pressure on your budget temporarily and the cost of changing lenders. Your broker can discuss all these options with you and point out any risk of fees, charges or penalties that may mean refinancing isn’t in your best interest.
Review your budget (again…)
You’ve likely reviewed your numbers a few times since interest rates started rising. Feeling overwhelmed with each new rate rise, however, may mean you’ve gone on auto-pilot and haven’t dug into the details recently.
If you haven’t already, go download our Sufficient Funds Budget Tool.
Look at each item, go through your bank statements, account for odd cash-spending, and take stock of your situation. This can be daunting! But you can’t get out of trouble (or get ahead) before coming to terms with where you’re really at. Even if the figures at the bottom come out in red, don’t stress. There’s more you can do.
Check out our Money Day article and work through each item. If you approach it seriously, you should come out to the other end having reduced some regular payments on your services, found a bit of a buffer, and automated your banking to reduce a lot of stress.
Consider ideas outside the square
It’s time to get creative! What else can you do that you haven’t considered, or normally wouldn’t consider in normal circumstances, to give your finances some breathing room?
Is there a room in your home you could rent out or Airbnb? Could you use your car for car-sharing services, Uber, or deliveries? What’s in your home that you don’t need that you could sell or swap? Do you have skills you could use to get some side-hustle income? You might not want to do any of these things, but you won’t be complaining when the extra cash hits your wallet.
Speak to a Financial Adviser
Whether you do or don’t have a current financial adviser, it’s worth reaching out to see if they can offer any additional insights or strategies. A financial adviser can formalise your money plans to keep you on track via debt reduction, cash flow and spending plans, insurance, super, investment options and structures.
If you currently have a financial adviser – pick up the phone and ask for a check-in. If you don’t, you can book a free call with one of our advisers to see if we can help.
Seek financial counselling or assistance
Your mental health and the well-being of yourself and your family are absolutely paramount. If you feel you’ve reached breaking point and have no other solutions available to you, it’s time to ask for help. Contact a free financial counsellor – they can offer solutions to manage your debts and budget to make sure you aren’t drowning.
Remember you also have the right to ask for financial assistance from your product/service and loan providers if you are facing financial hardship. It can be a difficult call to make, but most organisations have an internal team equipped to have these conversations. They can discuss payment plans, holds, deferrals, repayment reductions, and waive fees to help take the load off.
It’s important to contact your broker, or your bank or lender as soon as possible if you are having difficulties making repayments. More often than not they will actively work to help you in your current situation.
Remember, while things may seem difficult right now, there’s plenty of help at hand and you’re not alone! Share this article, and follow the links to chat with someone in our team.