Families on edge waiting to see what how high interest rates will rise

Many people are on edge waiting to see just how high interest rates will go up when the Reserve Bank of Australia meets next week.

Interest rates are expected to climb further when the Reserve Bank of Australia meets next week, with many people on edge to see just how much it is going to hit their hip pocket.

Nicola Alexander and her husband Bryan are among those waiting to see what happens.

The Perth couple work alternate weekend days to pay their bills and feed their three children, aged between eight and 14.

“I work Saturdays and he works Sundays … we sacrifice quality time with the family to manage,” she told NCA NewsWire.

Until recently, the family had a home loan with Keystart, with their lowest interest rate of 4.36 per cent.

Keystart is the West Australian government’s lending provider that offers low-deposit home loans to those unable to meet the deposit requirements of mainstream lenders.

“We had a shared equity loan where Keystart owned 20 per cent of our property, so realistically our loan repayments were based on 80 per cent,” Ms Alexander said.

While they knew their interest rates were higher than other lenders, the family never struggled to make repayments, but as rates began to climb this year they realised they needed to reassess their situation.

“With the help of a broker — and a few interest rate hikes later — we consolidated all of our debt,” she said.

“We now own 100 per cent and we are about $900 a month better off overall.”

Ms Alexander said inflation and cost of living were going up, but their income effectively remained the same, so the family worried about their finances.

“Our budget has not changed for things like groceries, as we just buy less overall,” she said.

“Insurances, rates and utilities have spiked massively, and most months we do have to request payment extensions.

“Overall, I feel we’re pretty lucky. We have always budgeted well from a young age and live within our means.

“But if the cost of living continues to go up at the rate they are, we may have some big adjustments to make.”

CBM Mortgages director Craig McDonald told NCA NewsWire many economists were predicting the cash rate to go as high as 3.50 per cent from its current 1.85 per cent rate over the next six months.

“We have obviously had a couple of 0.5 per cent increases the past two months and I think it will increase by 0.5 per cent again in September, with smaller 0.25 per cent increments in the later months before 2023,” he said.

Meanwhile, some people who locked in low two-year fixed terms are now starting to come off those deals.

“They are going to be coming from a sub two per cent rate, sometimes as low as 1.69 per cent to now reverting to a variable rate that could range from 3.79 per cent to over five per cent,” Mr McDonald said.

“It’s important that clients reach out to their broker or their bank prior to their fixed rate expiring to make sure they are not getting the banks standard variable rate offering and that a discount has been negotiated from the banks base rate as that discount difference can be over two per cent in some cases.

“It also gives you a chance to look at what is being offered at other lenders and that can assist you to negotiate with your bank on their interest rate offering.”

Mr McDonald said most clients were opting for variable rate loans because the gap between the fixed rates on offer and the variable rate was quite big.

A Westpac spokesperson told NCA NewsWire the bank had yet to see an increase in customers requesting hardship assistance.

“But we are monitoring the situation carefully and expanding our teams to better support customers,” they said.

“Our customers have saved well during the pandemic, with many building up a financial buffer to help soften the impact of rising interest rates.

“The majority have built up equity in their homes as a result of rising property prices and paying down their loans, two-thirds are ahead on their mortgages, and we have seen an increase in savings to deposit and mortgage offset accounts.

“At the same time, the job market is strong, and unemployment remains low enabling customers to continue to receive a regular source of income.”

Westpac is also contacting customers who are coming off low fixed rates to discuss their options.

“For those who need additional support, our hardship team is ready to assist with a range of tailored support options,” the spokesperson said.

“The most important thing customers can do is give us a call as early as possible so we can work with them one-on-one.

“Sometimes customers feel embarrassed about calling their bank, but the sooner we know there is an issue the faster we can find a solution to get them back on track.“

According to the Commonwealth Bank of Australia’s full year financial results, as at the end of June this year 0.49 per cent of home loans were in arrears – down from 0.64 per cent the previous year.

A CBA spokesperson told NCA NewsWire the bank was also assisting people who were coming off low fixed rates.

“We notify customers 42 days before their fixed rate is due to expire to let them know what their options are, including re-fixing their loan, splitting their home loan so that it is part-fixed and part-variable, or moving to a variable rate home loan,” they said.

“We have a range of support materials available for our customers, including tips on how to best manage their home loan in the current interest rate environment and tools such as our home loan repayments calculator.

“Should customers have any concerns, we encourage them to reach out to us sooner rather than later to see how we may best be able to assist.”

Source: https://www.news.com.au/finance/economy/interest-rates/families-on-edge-waiting-to-see-what-how-high-interest-rates-will-rise/news-story/d88fc2c7424b66da5f96772ef5519f10

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