Homeowners look for mortgage savings

Mortgage holders are doing all they can – be it refinancing, extending their loans or moving to interest only – to find some budget relief as rates stay higher for longer.

Homeowners are looking for ways to balance their budgets.

Mortgage borrowers are hedging their bets and switching their loans to new lenders or interest-only payments to ease budget pressures as rates look set to stay higher for longer.

Financial comparison site Finder estimates one in five borrowers – around 500,000 Australians – has switched to interest-only loans to pay the bare minimum on their mortgages and free up budgets. A further one in eight has also moved to extend their loan period to bring down repayments.

The value of mortgages refinanced to a new lender has also risen through the first half of 2024, according to the Australian Bureau of Statistics, but remains below last year’s peaks.

Finder money editor Richard Whitten said all these moves to artificially lower repayments need to be done while looking ahead.

“The short-term saving is important,” he said. “If you can’t make ends meet, you’ve got to deal with today rather than tomorrow, but then you have to have that mind for the longer term.”

Already, the value of home loans between 30 and 89 days past due as a share of the total owing on all mortgages has risen for the sixth consecutive quarter to now stand at 0.66 per cent. This is still below what it was in the year before the pandemic (0.73 per cent).

Two major banks, NAB and ANZ, rejigged their interest rate forecasts to push the first anticipated rate cut to mid-2025 after monthly inflation proved more stubborn than the Reserve Bank had intended.

But concerns are increasing that another rise or two may eventuate, particularly as low- and middle-income Australians see stage three tax cuts hit their bank accounts.

NAB senior economist Gareth Spence believes the RBA will be conservative but notes homeowners should be able to withstand a rise.

“We’re not in a great position in the sense that the services inflation is still pretty high, but we’re actually probably seeing some more trends that conditions are easing,” he said.

Homeowners need to hope for an interest rate cut but plan for a rise.

“The backdrop of everything else in the economy is becoming a little bit clearer, we think that wage growth has now peaked and labour market pressures are easing.

“Our consumer surveys certainly point to people making conscious decisions … the large discretionary stuff and the essentials. (But) we don’t think it would be a tipping point to do one or two more. I think it would certainly be felt.”

RateCity figures show those who have not refinanced since the current rate cycle began may be paying an additional $277 a month than those who moved to an average rate.

RateCity director of research Sally Tindall says homeowners need to hope for a cut but plan for a rise.

“Don’t start factoring in any kind of rate cuts into your broader budget,” she said.

“Focus on clearing one, if not two more interest rate rises. The extra money coming from the stage three tax cuts, will help support some families.”