What rising interest rates
mean for your mortgage
by Angela Dye Richmond Residential
We are being bombarded with the fact that interest rates are on the rise and we are surrounded with financial doom and gloom but it ’ s not as bad as you think . Let ’ s go back a few steps and look at where we really are .
Yes , rates are rising , this was inevitable . They cannot stay at all-time lows forever . So , what does this mean for you and your mortgage ?
When you got the loan from your bank you needed to qualify with them to be approved , which means you met their criteria for the loan . One of these criteria is serviceability , which means your bank
uses your income and liabilities along with your personal budget to determine if you can repay the loan .
Interest rates form part of the formula in the bank ’ s serviceability calculators . They know how the rates work . Rates go up and down over time depending on factors within our economy . Instead of using the rate you receive on your loan , the bank builds a buffer into the borrower ’ s rate for servicing purposes only , to ensure that in future you can afford the loan you are applying for .
The buffer can be up to 3 per cent above your loan ’ s rate and is not passed onto the borrower . So you see the bank will not lend you money you cannot afford .
If your financial situation is the same as when you settled your loan , then you should still be in a position to pay your mortgage each month .
The interest on your loan is compounding . That means you pay interest on interest . The question you need to answer is , do you want a low rate ? Or do you want to pay less dollars ?
Most people want to pay less dollars . To do this , you need to increase the frequency of payments on your loan . There ’ s no need to pay more . Unless you want to !
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Bank of Mum and Dad may cause mortgage heartache
First home buyers in the Blacktown LGA are at higher risk of losing the roof over their heads with the recent interest rate rise and it ’ s all to do with well-meaning parents , according to property data provider , National Property Group .
Parents are bank rolling first home purchases for their children in Blacktown City . Picture : Tierra Mallorca , Unsplash .
Fuelled by a mortgage lending spree , 2021 was a record year for Australia ’ s ninth biggest lender – the Bank of Mum and Dad ( BoMaD ).
A whopping 60 per cent of first home buyers turned to their parents for financial assistance to make their property dreams a reality , with BoMaD loans totalling a staggering $ 34 billion .
But experts warn that those who borrow money from their parents to fund a property are twice as likely to default on their mortgage within five years .
Blacktown tops the list of five
BoMaD-backed property hotspots , which also include Ryde , Queanbeyan , Albury and Coffs Harbour .
According to National Property Group , the era of soaring home prices may soon be drawing to a close , with some BoMaD markets that experienced rises of up to 117 per cent over the past few years now beginning to dip as the market cools .
As a lack of inventory , and the impact increasing interest rates will have on borrowing power start to influence thinking , it is likely even more first home buyers will call upon the BoMaD for financial support .
BLACKTOWN CITY INDEPENDENT theindependentmagazine . com . au ISSUE 16 // JULY 2022 23