3 in 5 mortgage holders are under financial stress due to rising interest rates
Households across the country are reviewing budgets yet again, after the Reserve Bank of Australia increased the cash rate for the sixth month in a row. Following the meeting on Tuesday, new research by comparison website Mozo.com.au has found that more 3 in 5 mortgage holders are under financial stress due to rising interest rates.
“In the last six months households have been hit hard. Rising interest rates have caused mortgages to increase by hundreds of dollars, making people rethink their financial decisions. Even though the RBA only increased the cash rate by 25 basis points, banks have been quick to announce that they will be passing it onto customers,” said Claire Frawley, Mozo Personal Finance Expert.
Mozo’s nationally representative survey results show that 31% of borrowers are under some financial stress, but will still be able to pay their mortgage. While 18% were in shock when interest rates rose, they will be able to adjust to the higher repayment amounts by the end of the year. However, 14% will be under extreme financial stress and unable to meet their repayments.
“Mozo found that more than three quarters (78%) of mortgage holders are concerned about rising interest rates. No matter your financial situation, rising interest rates are worrying for most households.”
A third (32%) of homeowners expressed that they would be under serious financial stress if their home loan interest rate was between 5% and 7%.
The average variable interest rate is currently sitting at 5.01%, this is not taking into account all the lenders that will pass on the 25 basis point increase following the October RBA meeting.
“Those with a variable interest rate of 5.26% will be paying $2,996 a month in repayments for a $500,000 loan.”
The lowest variable interest rate currently on offer in the Mozo database is 3.59% through Tic:Toc. The lowest big four variable interest rate is 4.24% through NAB for their basic home loan.
“Before this rate decision, only 15 lenders had passed on all five rate increases in full to customers. All eyes will be watching to see how lenders react to this rate increase,” says Frawley.
