By Cadeyn Williams, Inovayt Finance
The media have an incredible ability to influence the emotional decision-making of a majority of the Australian population. With the latest interest rate rises in 2022, it is essential for you as homeowners and landlords to not hit the panic button and consider your options before making any rash decisions.
Increasing interest rates not only put a strain on the household budget but can also reduce your ability to borrow from lenders.
See the below examples and scenario, which highlight the savings potential of reviewing your current finance arrangements, and the borrowing differential if you check vs not reviewed before a rate rise:
Existing Home Loan of $700,000 @ 3.20% with 27 years remaining on their loan term = P&I repayment of $3,229 per month
Refinanced Home Loan of $700,000 @ 2.29% with the same loan term = P&I repayment of $2,899 per month
That is $330 per month saved! That is $3,960 saved per annum.
Existing Investment Loan of $550,000 @ 3.80% with 27 years remaining on their loan term = Interest Only repayment of $1,742 per month
Refinanced Investment Loan of $550,000 @ 3.08% with the same loan term = Interest Only repayment of $1,412 per month
That is $330 per month saved! That is another $3,960 per annum.
John & Sally earn a combined income of $160,000 with one credit card and an existing mortgage loan of $900,000 @ 3.40% with 27 years remaining and spend on average $3,200 a month on living expenses. Max’s borrowing for John & Sally right now is $916,000.
With an interest rate increase of .50% to their existing 3.40%* (3.90% new rate), their new max borrowing reduces to $873,000. That is a $43,000 drop in borrowing capacity, meaning if John & Sally were looking to refinance post the interest rate rise, they would not be able to service their existing loan of $900,000 with a new lender, meaning they cannot refinance and take advantage of a lower interest rate. (*interest rate rises in 2022 correct at time of writing)
With mortgage loans equating to roughly 80% of an individual’s total ongoing monthly expenses, it’s critical to ensure you are saving as much money as possible. Unfortunately, research shows that close to 14% of Australians never review their home or investment loans, and roughly 44% complete a review every 24 months.
These examples highlight the importance of staying on top of your loans and not leaving any money on the table.
If you haven’t reviewed your home or investment loans in the last 24 months, it’s a great time to do so to ensure your interest rate remains competitive, to better position yourself into the future for that next opportunity.
If you would like to discuss your home or investment property loan, and how interest rate rises in 2022 affect you, book a free, no obligation meeting with our finance partner Inovayt Finance, please use the link below: https://imageproperty.com.au/property-health-check/