Around 800,000 Australian households are facing a financial horror-show this year as their fixed rate mortgage periods expire, leaving them exposed to the much higher interest rates that have resulted from consistent, aggressive hikes by the Reserve Bank of Australia (RBA) over the past 12 months.
Known as the “mortgage cliff’, RBA figures show that one fifth of home loans will see their fixed rate terms end in 2023. And, as the RBA announced another interest rate rise of 25 basis points to 3.35 per cent on Tuesday, it seems there’s no end in sight for Australian homeowners.
But it may not be all doom and gloom – sometimes you just have to get a little creative. Here, three Aussie homeowners share how the mortgage cliff is impacting them – and what they plan to do about it.
Read our guide on budget strategies to help manage rising mortgage payments
Sandra*, 31 – Sydney: ‘I’m passing on the costs to my employer”
“I’m staring down the barrel of an additional $1200 a month in repayments when my fixed interest term comes to an end in June of this year,” says Sandra, a 31-year-old PR executive who bought in Sydney’s exclusive Eastern Suburbs in 2020.
“I bought my first apartment in the peak of winter during Covid lockdowns,” she explains, “and luckily, I got it for a fairly good price, considering what the market was like at the time.”
“I’ve been watching the interest rates go up and up, and have been grateful for my fixed rate period as it’s kept my repayments consistent for the past 18 months, but that’s about to change this year and it will hugely impact my monthly budget.”
Sandra’s solution is bold and proactive. “I looked at my budget for ways I could tighten the belt, and then I thought – why should the buck stop with me? Why should I be the one shouldering the expense, when the cost-of-living crisis is already pinching?”
Taking advantage of the Great Resignation, and the fact that businesses across Australia are finding it increasingly difficult to find and retain good staff, Sandra went to her employer with a proposal.
“Basically, I sat down with my boss and explained that, with the rising cost of living, and interest rates as they were, I needed my salary to increase in line with that. I outlined my trajectory with the company over the past three years, as well as the increase in my salary, and requested a 23 per cent pay increase. After thinking it over, my boss agreed. I’ve covered the extra repayments and then some.”
Michael*, 42 – Ballarat: “We’re in front of our mortgage a little”
When Michael and his wife Paloma* locked in a fixed rate on their mortgage for two years at 2.19 per cent, they agreed to use the time to try and get ahead on their payments.
“We’ve been paying more than the minimum repayments each month, which puts us in a slightly better position than a lot of people facing the mortgage cliff,” he says.
“Still, in June this year, we’ll face an increase from 2.19 to 4.75 per cent – and that’s if things don’t increase any higher. Our current repayments are $1931 per month, and at current rates, those repayments would spike to $2468 – an extra $537 per month.”
While the top-up payments Michael and Paloma have been contributing monthly roughly equate to what the increase will be, they’re currently in talks with the bank about what their options are and how they can secure a more competitive rate when the time comes.
“We’re looking at ways to tighten the budget so we can stay a bit ahead of things. We’re a bit on the cautious side when it comes to money, but it has certainly softened the blow for us.”
Benson*, 34 – Melbourne: “I’m thinking of going back to FIFO work”
When 34-year-old Melbourne boilermaker Benson bought an investment property in Adelaide in 2017, he was working on a mine site in Western Australia, on a two-week-on, two-week-off schedule.
“The whole plan with me doing FIFO was to put in five years of hard work and get our family ahead financially. In that time, we bought a house in Altona, and later an apartment in the Adelaide CBD as an investment.”
Two years ago, Benson and his fiance – who was pregnant with their first child at the time – locked in a low fixed rate on their two mortgages, ahead of Benson finishing up on the mines to return full time to Melbourne and spend more time with his growing family.
“We know the fixed term is up in a few months,” he says, “and even if we could put a significant rent increase on the Adelaide unit, it wouldn’t cover the extra repayments we’ll be having to make. Plus, our tenants are locked in for another year and they’re good tenants – we’re not keen on forcing them to move by upping the rent.”
With an 18-month-old at home, Benson says he doesn’t want to miss a single moment, but looking at the wages he can earn on the mines in comparison to what he is being paid at home in Melbourne, the tradie believes FIFO work might be the best short term solution for his family.
“It will be hard on my fiancee to have to parent solo, and it was a situation we really didn’t want to have to face, but if I commit to even another year or two working away, hopefully we can put ourselves in a strong financial position with these rate hikes.”
*Sandra, Michael and Benson shared their tips with us on the condition of anonymity, therefore names have been changed.
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