How To Prepare For The Next 12-24 Months

BY JYH KAO_PUBLISHED ON JULY 19, 2022

Did you know at least $44 billion in fixed rate loans is due to expire in Australia this year? Alongside recent and planned cash rate rises, that means $44 billion worth of homeowners looking for a new deal. The big switch started last month, with Australia’s number 1 bank, and largest home loan lender, CommBank announcing $19 million in fixed rate loans would be expiring in June. By the end of this year, a further $25 billion worth of home loans will expire with CommBank, and almost $100 billion next year.

The main trouble is the 1-2% of the population who will get a nasty shock – people who’ve overextended dramatically, living without a budget, or at the upper limit of their borrowing capacity. We’re all aware of the impact of inflation of late. However, while home loans are set up to allow about 3% fat for rate rises, the reality is we’re in a period post-pandemic where as a nation we have a plan, and we’re executing it, but we’re yet to reap the benefits. Groceries, petrol and other living expenses are all going up. So for those living at their maximum, the impact of daily inflation alone on living expenses – let alone interest rate rises, may put you in stress.

For most Australian mortgage holders, they should be able to bear the additional costs without being in financial distress however there are some ways we can be better positioned entering this period of higher inflation and rate rising environment.

Here are some tips to help you navigate through this period:

  1. Create a monthly budget and know your cashflows – so many people we speak to have no idea how much money they have left over each month after all expenses. This is crucial to know how much buffer you have.

  2. Have an emergency fund – this will vary from person to person but make sure you set aside a fund for rainy days. It could be 3-6 months living expenses or more.

  3. If you have an owner-occupier property – consider changing your repayments to weekly and making additional repayments to minimise interest and pay down your loan much faster. Making additional repayments could slash your mortgage by years!

  4. If you are an investor – make sure you review your loan structures and tenancy rental agreements. Rents have increased almost 15% nationally, much more than interest rates. This will more than likely offset the increased cost.

  5. If you have personal debt – it might be worth consolidating this to pay off faster.

If you’ve been on a set home loan for more than 2 years – you may be missing out. Refinancing could be an opportunity.

Reason being, you’ll essentially be on an old rate plan. As lenders keep their focus on attracting new customers, older loans are less of a priority and they won’t be proactively reminding you to review your setup. In reality, you should be reviewing your loan structure annually. You should also review in line with life changes – both good and bad – such as change in job, income, having a child, and even receiving promotion or planning a move overseas to ensure your loan’s working smartest for you. Refinancing can take up to 2-3 months, so if you’ve been on your current loan for a while, don’t leave it till the last minute to consider a switch. If need be, restructuring your loan can help with headspace in the short-term too. 

The question used to be, ‘which bank?’. Now the question is, ‘am I with the right bank right now?’. Trust in a good mortgage broker can be the missing piece in that puzzle.