Families struggle with rising interest rates

Interest rates are expected to rise further when the Reserve Bank of Australia meets next week, and many people are excited to see how much it will hit their fanny pack.

Nicola Alexander and her husband Bryan are among those waiting to see what happens.

The Perth couple take turns working weekends to pay their bills and support their three children, aged between eight and 14.

“I work Saturdays and he works Sundays … we sacrifice valuable family time to make it through,” she told NCA NewsWire.

Until recently, the family had a Keystart home loan with the lowest interest rate of 4.36 percent.

Keystart is the Western Australian Government’s loan provider, offering low-deposit home loans for those unable to meet the deposit requirements of mainstream lenders.

“We had a shared equity loan where Keystart owned 20 percent of our ownership, so realistically our loan repayments were based on 80 percent,” said Ms. Alexander.

Despite knowing their interest rates were higher than other lenders, the family never had trouble making repayments, but when interest rates began to rise this year, they realized they needed to reassess their situation.

“With the help of a broker — and a few rate hikes later — we consolidated all of our debt,” she said.

“We now own 100 percent and are better off overall by about $900 a month.”

Ms Alexander said inflation and the cost of living were rising, but her income remained effectively the same, leaving the family concerned about their finances.

“Our budget for things like groceries hasn’t changed as we shop less overall,” she said.

“Insurance, tariffs and utilities have all gone up massively and most months we have to apply for payment extensions.

“Overall, I feel like we’re pretty lucky. We have always budgeted well from an early age and live within our means.

“But if the cost of living continues to rise at the rate it is, we may need to make some big adjustments.”

Craig McDonald, director of CBM Mortgages, told NCA NewsWire many economists are forecasting cash rates to rise from the current 1.85 percent to as high as 3.50 percent over the next six months.

“We’ve obviously had a couple of 0.5% increases over the past two months, and I think they will increase again by 0.5% in September, with smaller 0.25% increases in the later months leading into 2023 “, he said.

Meanwhile, some people who have agreed low two-year fixed terms are now beginning to close these deals.

“They’re going to come from a rate below 2 percent, sometimes as low as 1.69 percent, and now come back to a variable rate that could go from 3.79 percent to over 5 percent,” Mr McDonald said.

“It is important that customers contact their broker or bank before their fixed rate expires to ensure they are not receiving the bank’s standard variable rate offer and that a discount on the bank’s base rate has been negotiated, such as this discount differential can be partly over two percent.

“It also gives you a chance to look at what other lenders are offering, and that can help you negotiate with your bank about their rate offer.”

Mr McDonald said most customers choose variable rate loans because the gap between the fixed rates on offer and the variable rate is quite large.

A Westpac spokesman told NCA NewsWire the bank has yet to see an increase in customers requesting help in emergency situations.

“But we are carefully monitoring the situation and expanding our teams to better support customers,” they said.

“Our customers have saved well during the pandemic and many have built up a financial buffer to cushion the impact of rising interest rates.

“The majority have built equity in their homes and paid off their loans due to rising house prices, two-thirds are prepaid on their mortgages and we have seen an increase in savings on deposit and mortgage equalization accounts.

“At the same time, the labor market is strong and unemployment is low, so customers continue to receive a steady source of income.”

Westpac also contacts customers who are opting out of low fixed prices to discuss their options.

“For those who need additional support, our hardship team is standing by to help with a range of bespoke support options,” the spokesman said.

“The most important thing customers can do is call us as early as possible so we can work with them personally.

“Sometimes customers feel embarrassed to call their bank, but the sooner we know there’s a problem, the quicker we can find a solution to get them back on track.”

According to the Commonwealth Bank of Australia’s full-year financial results, 0.49 per cent of home loans were in default at the end of June this year – up from 0.64 per cent a year earlier.

A CBA spokesman told NCA NewsWire the bank also supports people moving off low fixed rates.

“We notify customers 42 days before their fixed rate expires to inform them of their options, including repricing their loan, splitting their home loan so that it is part fixed and part floating, or switching to an adjustable rate home loan “, they said.

“We provide our customers with a range of support materials, including tips on how to best manage their home loan in the current interest rate environment and tools such as our home loan amortization calculator.

“Should customers have any concerns, we encourage them to reach out to us sooner rather than later to see how we can best assist them.”

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