Interest rate rises looming again: six ways to help manage the pain

Home loan repayments have grown massively since May, leaving many borrowers feeling trapped, but there are ways to ease the pain.

The Reserve Bank’s near-certain November 1 interest rate rise will push millions of Australians deeper into mortgage stress.

Whether it’s by 0.25 or 0.5 percentage points, as some economists now predict following higher-than-expected inflation data, it will mean mortgage repayments this year have surged at least 40 per cent for millions of Australians.

That sort of jump in any household bill is painful, but when it’s your biggest monthly expense the pain is multiplied.

A 0.25 percentage point rate rise on Melbourne Cup Day would take monthly repayments on a typical $500,000, 30-year variable-rate mortgage to $2761, up from $1975 in May. That’s a total monthly increase of $786.

Many borrowers have bigger mortgages than $500,000, while many investors have several loans each charging much more today.

Sticking heads in the sand won’t save a severely-squeezed household budget, but there are a few steps borrowers can take to manage their mortgage repayments and hopefully avoid a default or other disaster.

1. CHECK YOUR RATE

Many people do not know what their current interest rate is, and how it compares with other offers in the market. There are plenty of free comparison services online that show what your lender’s competitors are offering. You won’t know if you can negotiate a better deal if you don’t know what you’re paying now.

Protect your home from surging mortgage rates by being proactive.

2. TALK TO YOUR LENDER

Lenders and mortgage brokers say people struggling with surging interest rates should speak up as soon as possible. They are used to helping borrowers in this situation and should be able to provide options to get through what will hopefully be temporary rate pain. No lender wants to be forced to come to you after you’ve missed several repayments without explaining why.

3. ALTER REPAYMENTS

There are a few ways to lower mortgage repayments – either temporarily or permanently.

Borrowers may be able to switch to interest-only payments for a while. The difference between interest-only and the usual principal-and-interest payments for the $500,000 loan outlined above is more than $570 a month.

However, understand that the mortgage may take longer to repay because during an interest-only period you are not knocking anything off the outstanding loan balance.

Some lenders may allow you to refinance or consolidate debts to lower total repayments, while switching to a new lender may achieve a similar result.

4. SEEK HARDSHIP HELP

Banks have hardship teams that honed their skills during Covid lockdowns in 2020 and 2021 and they may be able to help you through today’s troubles. The most popular type of hardship help is a repayment holiday, but this sort of assistance is not provided lightly.

5. TRIM YOUR OTHER SPENDING

Many households built up a lot of fat in their budgets during the recent record-low interest rates, and people will be surprised by how much money they can save by tweaking a few regular expenses. Restaurant meals, gym memberships, daily coffees and transport costs are among the most popular targets for immediate savings, but there are many more tips available online.

6. GET FREE COUNSELLING

Free financial counselling services are available by calling the National Debt Helpline on 1800 007 007. Some charities offer similar counselling.

Don’t be afraid to seek help. Our finances are among life’s most complex challenges for many people, so assistance should not be embarrassing.

Originally published as Interest rate rises looming again: six ways to help manage the pain