With consecutive rate rises throughout 2022 and talk of more to come, many Australians have been looking at their home loans more closely. Yet one thing that may have gone unnoticed is a loyalty tax and whether you are paying one.

What is a loyalty tax?

A tax for being loyal? It doesn’t seem fair, though it certainly is common. In recent years the RBA have confirmed that a loyalty tax exists, with pre-existing clients paying more interest on their home loans than new customers do.

Australia’s big four banks – Westpac, ANZ, NAB and CBA – are earning approximately $4.5 billion as a result, with loyal customers bearing the brunt of higher borrowing costs; those of which aren’t passed on to new clients.

It’s safe to say that as more of us feel the pinch, the greater our desire is to ensure we’re getting the best outcome when it comes to our home loan.

While reviewing your situation and shopping around for a better rate can seem time-consuming, the reward is not having to pay more than you need to.

The trend towards refinancing

To combat the impact of rising rates on household budgets, it makes sense that more Aussies are refinancing. With inflation being the highest it has been in Australia since the early 1990s, many of us can’t afford to not look for a better deal.

This is especially true in the eastern states. Last financial year saw a record 331,976 property refinances recorded for New South Wales, Queensland, and Victoria, which was a 29% increase on the previous financial year.

Checking your home loan and rate

You may have heard the terms ‘sleepy borrower’ or ‘sleepy mortgage holder’ before – these refer to people who haven’t checked their loan for over two years. Sound like you?

Checking your home loan and rate is always a good idea, and now more than ever. 2022’s cash rate increase – and the prediction that inflation will rise even further to around 7% – means there will be additional financial pressure on many Australian homeowners. Yet 55% of 1000 surveyed Australians didn’t know what home loan rate they were on, according to research from Mortgage Choice.

It is important to refamiliarise yourself with the terms and conditions of your loan. Do they still suit your circumstances? What is the interest rate you are paying? What are the fees?

A mortgage switching calculator can be an easy way to compare deals. But remember, rather than just comparing your interest rate with one being offered by other lenders, you also need to consider the fees both upfront and ongoing. This will help you get a clearer picture of whether you would benefit from moving your loan or refinancing.

It’s also worth speaking with us and we can flag your intention to switch with your current lender. This can result in a better deal, especially if you have a good credit rating.

Pitfalls to watch out for

While refinancing may be in your best interest, it of course doesn’t come without considerations. Depending on the conditions of your loan, you may need to pay an exit fee. While exit fees were no longer applied to home loans as of July 2011, if you have an older loan or extenuating circumstances (relating to early repayment of a fixed rate, for example) you might still need to pay this.

Then there are the fees related to your new loan. You might be able to avoid an application fee or ask for it to be waived, but there are non-negotiable fees as well, so find out what you will need to pay and when. There are establishment fees, related to the property valuation and legal costs, and also ongoing costs such as a monthly servicing fee. And while exit fees aren’t applied anymore, there can be leaving fees related to settlement and refinancing.

Don’t forget about Lenders Mortgage Insurance (LMI), which may be added to your home loan. As it’s non-refundable and non-transferrable, check to see if this applies to your new loan.

We can help you take the next steps, from reviewing your home loan to future-proofing your financial position, so give us a call or email to get started.

As the days get longer and we understand more about how the outlook for interest rates and the property market are shaping up, it’s the perfect time to pull back the curtains to give your home loan and general finances a thorough spring clean. You’ll then be in a better position to stay on top of your finances and property dreams.

Compare the current rates

You may have noticed that your home loan repayments have probably risen or will rise once your fixed-rate term ends, and you may be understandably nervous about how high they might go.

The most important thing to remember is that when you took out a mortgage, your repayment ability was measured to at least 2-3% above the default product rate (depending on when you took out the loan), with many brokers and lenders stress testing to 5%.

This means that unless your income has dramatically reduced, you are probably still able to service today’s rates, especially since they are rising from an all-time low. But to be sure, let’s start by checking that your current mortgage rate and structure is still the best fit for you.

Spruce up your mortgage rate

To assess your current mortgage, you first need to compare your interest rate against those currently on offer. This can be trickier than it looks, as mortgage benefits and discounts can differ widely, with your rate depending on the type of mortgage you have as well as your lender.

It is also wise to check your loan type – fixed, variable or mixed – and assess if it is still best for you going forward. We can help ensure you’re comparing apples with apples through our comprehensive data base that includes broker-only and up-coming offers. We can also give you a guide on how much your repayments are likely to rise with different rate rises and on different loan structures. If you are considering refinancing your mortgage, don’t forget that you’ll need to factor in any re-mortgaging costs when deciding if changing your mortgage is worthwhile.

Decluttering your finances

Whether you already have a mortgage or are hoping to buy your first property, you need to look at your whole budget and identify the monthly mortgage repayment level, that will tip you into tightening your financial belt and possibly mortgage stress.

Knowing where you stand and what the future may look like, should help you feel more in control and allow you to plan for the months ahead.

There are a lot of free budget templates online, including this MoneySmart one that makes it easy to include all your expenses. Don’t forget that annual payments like home insurance as well as quarterly utilities may be substantially higher the next time you receive a bill.

Plan ahead

Building a buffer or emergency fund can assist with not only unexpected expenses but provide you with some breathing room should rates continue to increase. Many people are deciding to build a financial buffer by cutting back on their discretionary spending before it’s really necessary, reducing items like TV subscriptions and meal deliveries. And don’t forget that if you’ve got an offset account, maintaining, or building your savings can reduce your monthly interest payments.

If your finances are stretched, you could also consider moving to interest only payments for a time or contacting your lender for a repayment ‘holiday’. Just be aware of how much extra interest you will be accruing. We can let you know what options your lender offers before you apply.

If you’re saving for a deposit or want to buy an investment property, you’ll need to check that you’re still on track for achieving your goals. Changing interest rate rises will impact the amount lenders will offer you, so you may need adjust your expectations as to what you can realistically afford. This includes the price of properties, as they may have gone up or down and you may need to adjust your expectations or timeline.

If you have any questions about managing rising interest rates or want some help giving your mortgage a spring clean, please give us a call.

It’s a challenging time for household finances right now. Interest rates are rising as the Reserve Bank of Australia increases the cash rate to put the brakes on inflation, and flat wage growth means household incomes have not been keeping pace with cost-of-living increases.

The best way to deal with uncertain times, is to be on the front foot with your finances and ensure your personal financial situation is as healthy as it can be.

If you are feeling the pinch of higher inflation you’re not alone. The prices of certain goods and services have risen well over and above the official inflation measure, most notably electricity – with the wholesale price surging more than 141% over 12 months, and petrol – increasing by over 32%. We are also feeling the pain at the shops with food prices also rising and experts suggesting increases could be as much as 10%.

So as the cost-of-living increases, how do you manage to boost your savings, save for a home deposit, or pay down the mortgage to get ahead?

Let’s look at some ways you can flex your money management muscles and strengthen your financial situation.

Get off the couch

The first step is to think about what motivates you to use as your focus, so have a think about your financial goals. Are you wanting to save for a particular purpose like for a home deposit? Or are you at a different stage of your financial life and keen on getting that mortgage down or looking at investing or renovating? Whatever the goal it’s important to identify how much you are wanting to save and your timeframe.

Don’t just think about your goal in cold, hard financial terms – being emotionally connected to your goal, i.e. why this particular goal is important to you, will provide the impetus to get started and to also keep you on track.

Track your expenses

To get off and running, add up your monthly expenses – the more information the better, so include quarterly or annual expenses as well as your discretionary spending which may be a little more difficult to track. As you go through the figures to come up with a total of your spending, see what you can learn from your spending patterns and where you might be able to cut back.

What’s your bottom line?

Analysing how your financial situation is faring is then a matter of taking your income over the course of a month and subtracting your total monthly expenses. Once you have a clear picture of your current financial position, it’s a matter of tweaking your spending and/or your income over a specific time frame to meet your financial goal.

Get a hand with the heavy lifting

Sounds easy but tracking expenses and sticking to an allocated budget can be tough, so why not let an app do some of the heaving lifting for you. There are many options including Beem It, Fudget, and Pocketbook. It’s also worth checking what budgeting features are offered by your bank or financial institution.

There are many and varied approaches to budgeting that you can select from, so find something that works for you. One popular method is to prioritise your savings and ‘pay yourself first’ putting a designated amount of money each month into a separate account. Or you could try the 50/30/20 method which involves splitting your monthly income into three main categories:

• 50% of your income for your needs – food, bills, insurance, transport, rent or mortgage repayments etc
• 30% of your income for your wants – distinguishing between needs and wants isn’t always easy but ‘wants’ are generally the extras that aren’t essential to living and working like travel, entertainment and dining out.
• 20% of your income for saving

Bulking up your savings

Discipline and developing good habits through repetition help you build your strength. Don’t panic if you have a blowout or an unforeseen event throws you off. Just get back to those good habits you are establishing. On that note it can be a good idea to have a contingency in your budget to reward yourself at a certain point or even to deal with a financial emergency.

There is nothing like the feeling of being in control of your finances and working towards a goal that you care about, so take first step to start flexing those financial muscles today.