Strategies to Remain on a Competitive Interest Rate amid RBA Rate Hikes

bigbadboogieman on 05/07/2022 - 17:51
Last edited 05/07/2022 - 21:39

Hi all,

Customary rant: it's absolutely $h!tty of banks to pass on all rate hikes when they never passed all rate drops to consumers.

Currently we are paying interest on a 600K mortgage on our residence. Our fixed rate expired just end of last month therefore we never had the opportunity to re-fix until it was already too late. I am quite anxious because of the continuous rates hikes by RBA and also the fact that banks will most likely pass on all rate hikes to consumers. It's not like the employers are inflation adjusting salaries at the exact same rate as RBA rate hikes. I don't think a mental health professional can help me in dealing with this kind of anxiety.

I wanted to know what my fellow peers at OzB are doing to remain on a competitive rate and weather the storm.

Thanks in advance.

Financial

Comments

  • capslock on 05/07/2022 - 18:08
    -1

    It's not like the employers are inflation adjusting salaries at the exact same rate as RBA rate hikes.

    It's not like they were reducing salaries while the RBA was cutting rates over the past decade.

    • sjj89 on 05/07/2022 - 18:35
      +22

      Taking inflation into account and that wages grew below inflation, technically wages were being cut year-on-year

  • brendanm on 05/07/2022 - 18:09
    +6

    It's not like the employers are inflation adjusting salaries at the exact same rate as RBA rate hikes

    This is the idea. Do people not understand why they are raising rates? They are trying to get people to stop spending.

    I don't think a mental health professional can help me in dealing with this kind of anxiety.

    The writing has been on the wall for some time, you should always assume the worst when getting a mortgage.

    To answer your question, refinance.

    • ausdday on 05/07/2022 - 18:17
      +1

      This is the idea. Do people not understand why they are raising rates? They are trying to get people to stop spending.

      Good point. As long as govt keep giving out free money (e.g. cost of living rebate, tax offset, etc.), it will be like pouring oil into fire.

      The unemployment rate is low, cafe business is booming, economy is doing well, the rate hike will continue.

  • ausdday on 05/07/2022 - 18:10
    +4

    What was the maximum interest rate you can tolerate? I am sure you did some maths before taking on a 600k mortgage? This is just the beginning.

    It's not like the employers are inflation adjusting salaries at the exact same rate as RBA rate hikes

    The govts are. All minimum wages employee get 5.1% pay rise, and others based on merits.

    • sjj89 on 05/07/2022 - 18:37
      +1

      5.2%* and inflation expected to be over 7% come December

  • Binchicken22 on 05/07/2022 - 18:12
    +7

    Have you looked into some of the low margin online only lenders?

    The three that come to mind are;

    https://www.unloan.com.au/ - A combank product (offers a marginal 0.01 % discount off their rate for each year you stay with them)

    https://tictoc.com.au/ - No, not related to the Chinese social media app.

    https://www.athena.com.au/ - One of the first of these online only lenders with ultra competitive rates

    The rates between the three are all more or less the same so it just comes down to who you prefer to deal with.

    Try not to stress too much about it mate, it's just not worth it. Everyone is in the same boat if that gives you any comfort, so the rates most likely aren't going to go sky high as Australia is a highly indebted nation and it would cause mayhem.

    • bigbadboogieman on 05/07/2022 - 18:25
      -4

      This is the only useful comment on this thread. Thanks.

  • mbck on 05/07/2022 - 18:31
    +4

    Hope you're ok op. And everyone else

    • bigbadboogieman on 05/07/2022 - 18:37

      I wish the same for everyone weathering this storm. I know I will survive as I had calculated double the interest rate of what I was paying when I got into the arrangement. I am beginning to doubt that even double wouldn't be enough.

  • avoidfullprice on 05/07/2022 - 18:31

    Were you paying interest only last few years as well as being fixed? If so, the anxiety is real when switching back to PPOR in increasing rate environment.

    I didn’t take on that much mortgage at the cost of living in more remote and smaller residence…

    • bigbadboogieman on 05/07/2022 - 18:35
      +1

      Not interest only. But it's only been 2+ years so yeah the principal isn't way down. Unfortunately the average price of a reasonable home in Sydney Metro isn't exactly cheap. Outstanding mortgage of 600K is pretty much on par with average or below average for Sydney Metro.

      • avoidfullprice on 05/07/2022 - 19:57

        Yeah i hear you. 2 bdr apartment unit is crazy in price!!

  • jizmo on 05/07/2022 - 18:43
    +3

    Might seem hard now but if you look 5 years into the future. Your repayments at say 6%P.A are still going to be cheaper than renting the same house in 2027. + you've probably made an extra 200-400K in valuations

    • bigbadboogieman on 05/07/2022 - 18:46

      You are probably right. I am thinking to refinance but closer to the time when RBA is stepping off then rate hikes pedal so there is more clarity in the market in terms of the best available rates and lenders.

      • Binchicken22 on 05/07/2022 - 18:49
        +6

        Mate if you can get a better rate now I'd just go for it, not really much advantage in waiting while paying a higher rate.

        I'm in the exact same situation, just came off a 2 year fixed rate so looking to see what deal I can get now. The best deals are all variable now which means no contract, so if something better came up in 6 months time you could change again if you really wanted to.

      • brendanm on 05/07/2022 - 18:54

        Refinancing is easy, you can do it over and over. You can get cashback for doing so as well, approx $4k at the moment, which covers all fees, and leaves you with $3000+ straight away.

        • iNeed2Pee on 05/07/2022 - 18:57
          +1

          $3000 to spend on other deals posted here!! 😂

        • bigbadboogieman on 05/07/2022 - 19:15
          +4

          I managed to negotiate a $2000 retention bonus from the bank. My current rate is 2.74% before today's rate hike. I need to stay with the current bank for 4 more months to receive the bonus.

          The cheapest rate I can see online is 2.59% before today's hike. This equates to a $900 per annum saving on interest or $300 over next 4 months.

          So the plan is stay for 4 months, take the retention bonus, move to another lender and get a refinance bonus hopefuly with a better rate.

          Although all lendors currently offering a refinance bonus except for Westpac are at a higher rate. Can't go to Westpac because I am ineligible so need to find another lender outside of that banking group.

  • onetwothreefour on 05/07/2022 - 18:49
    +2

    Refinance, keep money in an offset, pay fortnightly, make extra repayments.

  • jizmo on 05/07/2022 - 18:55
    +2

    Banks don't get all their money solely from AUS if they're borrowing money from USA and Europe and their rates go up so does here.
    RBA has some to do with bank rates but not all that dictates loan rates

    • gyrex on 06/07/2022 - 12:10
      +1

      Underrated response. Movements in RBA cash rates aren't the sole dictator for bank money acquisition; nor are banks required to pass on the cuts and/or increases. Competition in the market will drive loan and/or savings interest rates.

  • foxmulder on 05/07/2022 - 18:58

    Have you done the basic, pay fortnightly instead of monthly, and pay $1k extra every month. And yes do shop around for better rates.

    • fozzie on 28/07/2022 - 11:25

      Hi, why is paying fortnightly better? I pay monthly.

      • foxmulder on 28/07/2022 - 12:14
        +1

        In short, as there is 26 fortnightly in a year, you pay 13 months instead of 12. This article explains: https://www.yourmortgage.com.au/compare-home-loans/fortnight…. What's interesting is for a 30 years mortgage with monthly payment, time to pay off loan will be shorten to 26 years and 11 months if you pay fortnightly.

        • fozzie on 28/07/2022 - 12:26

          thanks :)

  • Keplaffintech on 05/07/2022 - 19:09
    -1

    wait until rates stabilise at least. If you refinance during the rises you might get a slightly better rate but the bank could just bump it up more when rates rise.

    • Binchicken22 on 05/07/2022 - 19:12
      +2

      They are all going to be bumping up their rate while the RBA is raising rates, doesn't matter if you refinance now or later.

  • lachhelix on 05/07/2022 - 19:20

    I'm in the same boat as you - I bought my first house (literally one of the cheapest on the outer Melbourne) after saving for ages just before lockdown (when the lending was still very strict) and I'm just as stressed….
    I could afford a mortgage rate of around 7-8% but anything higher than that is likely going to mean alot of changes

    Maybe we should start a support group!

    • MrMarket on 05/07/2022 - 20:23
      +4

      You will be right, don't stress with 7-8% calculation, rate likely to top at 3.5% then banks 2% margin on top so it you end up with 5.5%
      factoring in for some more !@@#$ and it may end up at peak 7%

      People in trouble are the ones that don't factor for 7-8%

      • lachhelix on 05/07/2022 - 20:55

        Thanks @Hearthstone
        🤞

    • bigbadboogieman on 05/07/2022 - 20:58
      +1

      We need a financial support bulk negotiation group. Basically find a way to group up and negotiate a better rate with banks. Just like bulk buying. This can benefit a whole lot of people here and everywhere.

  • mousie on 05/07/2022 - 19:38

    Good luck.
    They are calling it an interest rate cliff. We up sized our place 3 years ago and locked the majority of our lown in a 5 year term and have a portion as a variable.
    Loan splitting may help hedge the difference between fixed and variable.

    Your existing bank won't do sweet fa unless you move or complain. I would lodge a complaint to their department for not offering to refiz the loan, and start shopping around. If it's worth the administrative effort to discharge and refinance, they may give something for you to stay including a competitive rate.

    Squeaky wheel always gets the grease.

  • Some Human on 05/07/2022 - 20:34
    +5

    The best thing you can do is start putting every spare dollar onto the mortgage until you get it down to a comfortable level. No eating out, no upgrading things for the hell of it. Try for a lower rate too, but paying it down will alieviate a lot of the stress you seem to be experiencing.

  • Trying2SaveABuck on 05/07/2022 - 20:57
    +1

    Customary rant: it's absolutely $h!tty of bank to pass on all rate hikes when they never passed all rate drops to consumers.

    i agree, thus you need to refinance when your bank is shafting you

    Home loans are incredibly competitive - our rubbish media want you to believe the big four are the only answer but there is so much competition you just need to look away from the big 4 and ideally away from 'traditional' banks

  • Drakesy on 05/07/2022 - 21:19

    If it makes you feel any better i read a story about a 22yo graduate cum housing investor who bought $1 million worth of properties in 2021, admittedly he acknowledges the risks he took and doesn't blame the RBA. But for every one of you there'll be an investor in negative equity sh1tting bricks on a million dollar debt.

    • bigbadboogieman on 05/07/2022 - 21:36

      It doesn't make me feel better. I do acknowledge I am better off than thousands of people.

  • Benoffie on 05/07/2022 - 21:20
    -7

    Weather what storm? Bank offered us a borrowing capacity of well over $600k (20 yrs ago) and we spent 100k.

    And before anyone gets all 'housing prices blah blah', even in the recent crazy, in SA, you could still buy a house sub $400k, it just was going to be in the outer suburbs. Hell, maisonettes are still sub $300k.

    Tldr - you borrow and buy where you can afford in the worse case. 10% rates and a recession.

    • bigbadboogieman on 05/07/2022 - 21:32

      Yeah not all Australians live in SA. Think of this comment again when your paying $590 in interest per month instead of $160 that you would have paid without the rate hikes.

    • Binchicken22 on 05/07/2022 - 21:50
      +2

      Congrats you don't have a home loan (or very little) because you bought 20+ years ago.

      It may come as a surprise to you, but there are other people are at different stages of their lives and OP only bought a house 2 years ago, so yes if you have a reasonable sized home loan (600k is pretty modest these days, especially for Sydney from what I hear) then interest rates and getting the best deal are important.

      • Benoffie on 05/07/2022 - 22:13
        -5

        Well forgive the rest of us that a) are sick of being the go to for people who can't seem to get there finances in order and b) dont want to actually hear people whine about their poor life choices.

        Fairly certain it was very well discussed, even in these hallowed forums, that it was a suckers bet buying into the FOMO during the pandemic.

        Regardless of life circumstances, the fundamentals are the same - you buy and borrow what you can reasonably afford assuming the worse case scenario.

        It isn't for the RBA, the bank, these forums or Joe Public to care that people didn't understand the basics of economics.

        And it really doesn't help when people here give false sense of reality. Like saying rates won't go up as Australians are so debt laiden. The RBA doesn't give a toss about the fiscal position of household debt. And if 10% rates are needed to reign in inflation, they'll do it.

        It'll be 1992 all over again. But hey, don't listen to us 'oldies'

        /rant

        • Binchicken22 on 05/07/2022 - 22:23
          +1

          The RBA is trying to reign in inflation with higher interest rate rises to crush demand and allow supply to catch up so prices don't keep spiraling higher and higher. It remains to be seen if they will be effective as most of the reasons for the current inflation situation aren't domestic, apart from the huge money printing operation that was egged on by the dumb-arse lockdown hungry public during covid. All that covid stimulus money printing has certainly come home to roost now.

          But anyway,

          High household debt levels mean that the average Australian is effected to a greater degree by each rate rise, and therefore will have less money to spend in the economy, so yes high household debt is 100% relevant to what the RBA is trying to achieve, it's pretty simple.

        • Third_Gear on 05/07/2022 - 22:39
          +1

          Then why did you click into this thread to read and comment if you don’t have anything helpful to provide?

  • Duckie2hh on 05/07/2022 - 21:33

    Take a sabbatical on alcohol.

    • bigbadboogieman on 05/07/2022 - 21:34
      +1

      Haven't had any alcohol in a decade. Would probably take a sabbatical on KFC instead.

      • Duckie2hh on 06/07/2022 - 07:34
        +1

        Then life is no longer worth living :(

  • tajid on 05/07/2022 - 21:35
    +1

    To be fair, they also have their cost of funding.
    Until recently, banks had access to Term Funding Facility which made funding much cheaper during COVID. Cost of fund also continues going up, whether that's through local or overseas funding. BBSW and other interest rate benchmarks around the world have gone up, some larger than the cash rate increase of 50bps.

  • burningrage on 05/07/2022 - 23:29
    +1

    People complaint about this when they were already warned way way months about this.

    The smart ones fixed and delay the pain, wishing that by the time the terms expired, a better economic manager Govt will take place.

    The foolish ones voted their own pain. They reap what they sow.

    • jacross on 06/07/2022 - 09:37

      a better economic manager Govt will take place.

      What does this mean/look like to you? Which party/candidates would represent 'better economic management' and what policies would they have enacted to ameliorate the current macroeconomic conditions we face?

      • bigbadboogieman on 06/07/2022 - 11:09
        +1

        Basically it was a customary rant just like I made to feel a little better. You can choose to ignore it. It's not always you reap what you sow.

        • jacross on 06/07/2022 - 19:10

          Okay fair enough.

  • Boogerman on 06/07/2022 - 08:26

    Based on financial markets, your typical variable interest rate will be around 6% in 2023

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