The first step to navigate looming higher mortgage payments was for borrowers to speak to their current lender, AMP chief economist Shane Oliver said.
“I think the key is to have a chat with the bank because banks don’t want people to default as that’s a problem for them as well,” he said.
“So banks are geared to helping people on this front with financial wellbeing assistance available.”
Approaching the bank for a lower interest rate was worth trying, he said.
“I think many Australians have found that the bank wants to retain people’s business, as once you go variable you could potentially switch to someone else as it’s much harder [to switch] when you get a fixed [rate],“ he said.
Many households were well aware a “big financial pinch” was looming with many record-low fixed-rate loan periods close to coming to an end, PropTrack senior economist Paul Ryan said.
“The best way to prepare for that is to get in early and consider what your new expenses are going to be,” he said.
He said to take stock of expenditure on entertainment subscriptions, consider areas spending could be cut back, and perhaps consider options to increase your income.
“One of the things that are working in households’ favour at the moment is the labour market is tight, so while interest rates are going up, it’s never been a better time to apply for a new job,” he said.
Mortgage Choice franchise owner James Algar said he has been speaking to mortgage holders well in advance of when their fixed rate was due to end, which ranged anywhere from three to six months.
“Now is the time for you to get comfortable with your new budget and start living life as if your payments have already come off the fixed rates,” he said.
“Because in the meantime if they are already paying extra on their mortgage, or they are building up a ‘war chest’, inevitably when payments jump, they have bit of a cushion to cope if it takes a while to adjust,” he said.
“By and large, the more difficult conversations are with people who are getting into a greater level of debt over the past three years.
“So in terms of strategy, what we are doing with those people is having a real conversation with what has changed in their world income wise and getting back to basics with budget.”
With some banks still offering cashback deals to switch, Mr Algar warned borrowers to be mindful.
“It’s a bit of a sugar hit now and nearly in every case when someone refinances, if they are taking a cashback, they are nearly always pushing out their loan term,” he said.
“You should not just be refinancing just for the cashback because banks are good at making money so there’s always a payback somewhere.”
While some people will be able to cut back on their spending and survive higher mortgage repayments, borrowers who believe they are at risk of defaulting should contact their bank well before that happens, Mr Oliver said.
“They could switch you to an interest-only loan, which will then be a substantial reduction in your payments.
“Of course it does come with long-term costs because you potentially have a mortgage for longer, or your repayments will be higher for longer, so you’ll end up paying more on your mortgage. But it may be sufficient to get someone across the line through this period of high rates.
“Most economists are sort of assuming that some time through next year the RBA will start cutting rates again as the economy cools and inflation falls. So, if you can sort of hang on into next year then you might find some relief.”