On 1 February 2021, the Reserve Bank of Australia (RBA) announced they’ve decided to leave current cash interest rates unchanged to support the country’s ongoing COVID-19 recovery. This rate currently sits at 0.1 per cent, where it has stayed since November 2020.
These favourable interest rates are good news for borrowers. Not only will they keep financing costs down and contribute to a lower exchange rate, but they’ll also make getting credit easier for households who have lost jobs or been otherwise negatively affected.
According to RBA Governor Philip Lowe, these low-interest rates won’t increase for at least another three years. Some experts disagree if the economic recovery is swifter. Whatever the case, now might be the perfect time to consider refinancing your mortgage.
Mortgage freezes coming to an end
Not only are interest rates low right now, but many mortgage holidays offered during the pandemic are due to come to an end in February and March.
If you were among the 1 in 9 Australian's who took advantage of these mortgage freezes at the height of the pandemic, you would have no doubt felt the pressure ease. However, when the payment pause ends, you may be facing a financial cliff: having to resume your commitments with accumulated higher monthly payments. When National Australia Bank (NAB) stopped their mortgage freezes in January, the ratio of troubled loans climbed to its highest in seven years. This was largely due to people falling behind on repayments.
With this in mind, you need to start budgeting for repayments now. Don’t leave it until the payment notices start coming in and you simply don’t have the cash. Try our free instant debt analysis today to see your debt management options.
Use a home loan repayment calculator
Home loan calculators are a smart way to reassess your mortgage commitments and your ability to pay them.
If you’re sinking in mortgage debt, a home loan calculator can help you figure out how much your mortgage is costing you. They can help you work out your monthly, weekly or fortnightly repayments, as well as your total repayments.
This reality check can be extremely beneficial, especially if the pandemic negatively impacted your job and salary. It can also be helpful if you’ve accrued additional personal debt to live – something that will have added to your monthly outgoings, potentially affecting your ability to meet your mortgage commitments.
Alongside using a home loan calculator, you can also use a budget calculator to help you map out and plan your monthly expenses.
Look at home loan refinancing
If your current home loan set up is costing you too much, or your repayments have become unmanageable, mortgage refinancing might be a good option.
What is refinancing a mortgage? Put simply, home loan refinancing involves taking out a new mortgage to pay off your existing one.
As well as giving you the opportunity to find a better deal on your home loan, they can also help you find a mortgage that better suits your current financial situation and any changes you have experienced in your income or circumstances.
When refinancing your mortgage, you can also look to consolidate other existing personal debts into your new mortgage. This can help relieve financial stress further as these debts are then paid over the term of your home loan (which may be up to 30 years) at a very low interest rate, leaving you more room in your budget to meet your day to day living costs.
Fixed-rate or variable rate?
Fixed-rate mortgages can be a good option as they offer fixed repayments for the period of the loan. During COVID, fixed-rate mortgages surged from 15 to 30 per cent to take advantage of the big reductions in interest rates.
If your current mortgage is fixed, you may be in a good position. However, if your existing home loan was fixed before the drop in interest rates, you may be left at a rate much higher than the current bank rate lows of around 2.0 per cent.
On the other hand, if you’re on a variable rate mortgage, your repayments right now will be low due to the low-interest rates. The downside is that you don’t know when and if this will change – despite the RBA’s confidence. If interest rates did increase, your repayments would rise and potentially become unmanageable.
In either case, now is a good time to consider whether your current mortgage is a) manageable and b) the best type of mortgage for you and your current financial situation.
With current interest rates so low, you may never get a better deal on a fixed mortgage than right now. It’s hard to see fixed loans getting much cheaper. Refinancing your mortgage to a new fixed-rate can help you keep your repayments down, streamline your budget, and give you peace of mind.
However, bear in mind that there may be fees attached to breaking out of your current mortgage. These costs can be significant and may outweigh the benefits of refinancing.