As the Reserve Bank of Australia (RBA) raises the rate yet again, homeowners with variable rate home loans are feeling the pinch. The increase in mortgage costs has put a strain on household budgets, particularly as many fixed-rate loans are expiring this year. 

If you are feeling the strain of the continuous rate hikes and are worrying about making a mortgage default, here are steps you can consider.

Negotiate with Your Lender

One effective strategy is to reach out to your lender and inquire about better interest rates. It may come as a surprise, but many borrowers have successfully negotiated lower rates simply by making a phone call. Before contacting your lender, research the lowest advertised rates from comparison sites. Armed with this information, you can leverage your position as a valuable customer and inquire about a rate reduction.

When negotiating with your lender, it’s important to highlight your payment history, creditworthiness, and loyalty as a customer. Emphasise the fact that you have been making timely payments and that you are considering refinancing with another lender who offers a more competitive rate. This can create an incentive for your current lender to reconsider and potentially provide you with a better rate.

Consider Refinancing

If your current lender is unwilling to lower your interest rate, explore the option of refinancing with a different lender. With the intense competition among financial institutions, switching lenders has become a common practice. Refinancing can potentially lead to significant savings, especially with cashback deals and attractive interest rates on offer.

When considering refinancing, it’s important to calculate the costs involved, such as exit fees from your current lender and establishment fees with the new lender. However, the potential long-term benefits of a lower interest rate may outweigh these upfront costs. Use online calculators to compare the total costs and savings associated with refinancing to determine if it’s a viable option for you.

Cut Back on Expenses

To counter the impact of rising mortgage payments, it may be necessary to reevaluate your expenses. While minor adjustments like bringing lunch to work can help, consider more significant changes to your budget. Assess discretionary expenses such as private health insurance, private school fees, or expensive vacations. Sacrifices in these areas, though difficult, can provide substantial financial relief.

Additionally, review your utility bills, insurance policies, and subscription services to identify potential savings. Negotiating with service providers, switching to cheaper plans, or even cancelling unnecessary subscriptions can help reduce monthly expenses. Consider consolidating debts or seeking professional advice to optimise your financial situation further.

Explore Interest-Only Loans

Temporary relief can be found by converting your loan to an interest-only payment structure. Although interest-only loans generally carry higher interest rates, they offer immediate repayment relief by reducing the required annual payments. This approach can provide homeowners with some breathing room until interest rates potentially decrease in the future.

Keep in mind that opting for an interest-only loan means you won’t be building equity in your property during the interest-only period. It’s essential to reassess your financial situation regularly and consider transitioning back to principal and interest payments when it becomes more feasible.

Seek Hardship Assistance

Every lender is obligated to have a hardship program to assist borrowers experiencing financial difficulties. If you are struggling to make repayments or anticipate future difficulties, reach out to your lender’s hardship department. They may offer options such as extending the loan term or temporarily reducing or pausing repayments.

Applying for a hardship variation involves contacting your lender, providing relevant loan 

It is difficult to be stuck near the edge of a mortgage cliff. While it may not seem like you have plenty of options, an option or two would still be of great help. This is what exactly you need brokers for. To help you sort out your financial situation and come up with the best solutions possible. Contact us now if you’re wondering about your next move. We are here to help you get over these mortgage-related hurdles.