Fixed rate borrowers whose terms are ending within the next 12 months have been urged to assess whether they will be able to refinance at the end of their term or be better off renegotiating their loan today.
RateCity analysis finds an average buyer who bought a house in Sydney in July 2021 for $1.3 million with a 20 per cent deposit would have 17 per cent in equity today, with the median price having fallen to $1.2 million. But if the median price falls to $1.1 million in December this year, as per ANZ’s forecasts, they’d have only 11 per cent. The same buyer in Melbourne, purchasing in July 2021 for $957,000, would have 17 per cent equity today, and 12 per cent by December.
Those who owe less than 80 per cent, but are brushing up against that threshold, should ask whether they’d be better off breaking their fixed term early to access the current fixed rates before projected RBA increases push rates higher, or property price falls nudge borrowers into that equity danger zone.“Owning less than 20 per cent of your property isn’t an automatic sentence to mortgage prison. It just means your new bank might charge you lenders’ mortgage insurance,” says Tindall.
But if the Reserve Bank of Australia were to raise interest rates another three times, that borrower could expect this variable rate to reach 6.29 per cent by the time their fixed loan ends. But by locking in that 5.59 per cent fixed rate now, rather than potentially 6.29 per cent in June, they’d be paying 0.7 per cent less in interest, and saving $5250 per year.
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