NewsFlashFriday: Interest Rates

Hi, everyone. It is News Flash Friday. We have Aaron Whybrow and myself, Karina Fox, here with you this fine Friday morning. And we are going to look into what is happening out there, hot in the market. So, Aaron, what are we looking at this week?

So this week the topic is that there's a lot of conversation in the media and out there related to what's happening in the market. The interest rate rises that came in last week and they're starting to have an effect on people's mortgages, other cost of living pressures that are all there. And they are all talking about it from a big global or market perspective and sometimes us as individuals always looking at the market and not looking at ourselves. So that's the topic we want to look at. And I think we want to unpack a couple of questions that specifically came in from a client of yours. So what were those questions, Karina?

So I had a client this week reach out to me and they wanted to know what interest rate they were assessed at when they got their home loan. So most homeowners or investors, anyone who's got a mortgage, if they've been educated along the way, would be familiar that the interest rate that they're applying for is, is not the interest rate that they're assessed at. So for those of you that are not sure what that refers to, it essentially means if your interest rate is at 3% and that's the rate you'll get from the lender, you're essentially being assessed at 2.5 or 3% higher as a risk rating, a buffer rating or assessment rate for the idea that if rates went up that you could still afford your mortgage. So my client reached out and asked me this specific question. At the time they obtained their home loan, they were at a 5.25 rate. So she was quite comfortable that there was a buffer there. But, you know, the end of that conversation, sorry, of that question was, you know, what else can I do? Because if rates continue to rise, then if it exceeds that, what position does that put me and my family? So we had to unpack that. This is what we're here to talk to everyone about today. So the first thing that we had a look at and it's a really great solution to do, is to reach out to us and have a look at your current interest rate and see if we can get any pricing discounts from the bank. So this is something that we can do for our existing clients. This can be for anyone who's listening, even if we're not your broker Reach out to us. It doesn't hurt to ask your lender for a rate reduction. And what's the worst thing that could happen by asking the question? Worst thing is they say no, but what if they said yes? Right. So that was the first point. We were able to get a reduction on her interest rate. The second thing that we spoke about was actually reviewing your budget. So this is one that is a little bit daunting for a lot of people. We talk about living expenses when you get your home loan and you've got to give us a detailed breakdown. And I would say like 80% of people don't really understand where they're spending their money. And when we talk about a living expense breakdown, this is a really good point of reference to look at where you're spending your money. What are you spending your money on? What subscriptions do you have that you don't need anymore? What are frequent costs that you're spending, like getting your hair done every six weeks or something? Can you push that out to every eight weeks? I know that some of us in the COVID lockdowns that we had didn't get our hair done at all. So is what you're currently spending your money on, is it a priority? Is it something that is a necessity for you and your family? And if it's not, why not change that? Why not use that extra money to put into your mortgage or put into your other liabilities? So you know, Aaron, these were just two of the things that we spoke about, but we know that there's a few more. What things would you offer clients?

Yeah, so clients have to do exactly that. They have to make sure that they are getting the best rate, getting their budget in check. But what is the budget that you have to pay your debts? Now this is a common, common fur fee. People go, I just have to pay the debts. But did you make a budget to pay your debts? So we already talked about. You touched on Karina about budgets that people don't know exactly where they spend their money. Most commonly when we ask them to complete a financial fact find and let alone. Not many people think about how they need to budget for their debts. They just look at how they can afford their debts. And recently we've had clients pay out their credit cards and they found another 600 bucks a month to be able to pay off other things or cushion any emergencies or even rate rises specifically to their needs. So what is your budget outside the mortgage? What's your budget for the mortgage? What's your budget for the Other debts. And what's your budget for those haircuts that we didn't really get last year with regards to doing that? Where do you start to pay down some debt? So if you've got some extra cash lying around, what do you do to start? Well, my big suggestion would be start with the lowest owing debt. So imagine how it feels when you get that lowest debt and you pay it off and how that feels, and then you've got free surplus money that was going on that debt, and then you can go to the next one that's the next lowest, the next lowest, the next lowest, and then you'll be surprised what happens there.

There's something really cool about that, because that's an aspect of psychology, is saying if you've got, you know, what's easier to save, like $10 or $100, $1,000 or $10,000, you know, it's essentially, you just have to start somewhere. So if you've got a $500,000 mortgage and a $5,000 credit card, which one is easier to focus on paying down first? So, you know, I like the little bit of spin of psychology that, yeah.

We got to start somewhere. And the other one that we can do is that when you do the pricing or you call the bank, you call us, we do some pricing, and we still don't get to what the market is providing at the moment. We're finding that lenders are anywhere from one to one and a half percent difference. So our lower lenders are still fairly low compared to some of the majors. We're finding some of the alternative lenders aren't rising their rates as fast as others internal to some of the products in the market. If you're borrowing up to 80%, you might get the full rate rise. You borrow over 80%, you might get the full rate rise. But some lenders under the 70 or under the 60% owing on the value property, they're not passing on the whole rate rise. So they're actually competing for your business in that space. So having an understanding of what your current lender can do, what your budget is, how we're looking at your other debts outside your mortgage, and what budget do you have for those? And then refinancing is another very common thing in regards to if rates are rising and you're starting from a higher level, how about we start from a lower level? If there is a whole percent rate change between one lender and another lender right now, after the rates have risen, go to the lower lender. Because if you got a whole percent there. It could be two rate rises, it could be four rate rises that you're actually, actually cushioned before it starts affecting you. And don't do any of these in isolation. Do them all together and use a professional like us.

Absolutely, absolutely. And I think, you know, just on your last point, a lot of people look at a refinance just simply being an aspect of their home loan only. But I think it's really important to. For everyone to understand that you can actually review your personal credit liabilities, like your personal loan. If you started that loan with a $40,000 limit and it's now at a $20,000 limit, you're still having repayments based on your original limit of 40,000. And you could essentially have that repayment change from like $700 or. Yeah, around $700 a month down to $400 a month. So I think, you know, it's. This kind of conversation for us is not just simply for homeowners, it's for anyone, anyone who has credit or anyone who's wanting to buy in, who's wanting to buy their first home or their first investment property that doesn't have a home loan yet. And they're looking at what can they do to prepare themselves to enter into a mortgage where there is a, you know, rising interest rates. So, absolutely, looking at them all together and not in isolation is a great path forward.

Cool. So. And that's. That's the healthy thing to do. And you should do this all the time. Like we talk in business land about trying to cut expenses and looking at our suppliers, but we also need to look at our lenders and our banks as suppliers of money, or suppliers of money to buy a car or a house or a float for an emergency breakdown or something like that, which is what commonly is used for a credit card. So I think one of the things that people need to do as they listen to this video is don't look at the market. No one actually buys the whole market and have it all change on you. No one actually buys the whole property market, the whole share market. You actually buy something inside that and this brings it back to you. You have to calculate. You not calculate how you impact on the market. You want to have an impact on the market in other aspects. But what is it that you can do for you? Because if you're not using 98 petrol and you're using diesel or using unleaded, that's a big change in your own personal circumstances. If we got your low rate interest rate versus someone that's on a higher one that's about you, not about the market. So take, take this, this assessment on yourself. Reach out to us as brokers to help you out with your mortgages and your other debts. But let's have a look to you not to what the whole market's doing. And I think as you turn on the news and the media next time and it says it's all doom and gloom, you'll go, okay, I've got a handle on my position. I actually understand where my, my budget is. I understand the pricing on my mortgage. I understand why I have that on my mortgage. And reach out. The questions that we get are really, really cool. And we'll unpack some more later in other conversations on a Friday.

Absolutely. Thanks so much, Aaron. And thank you everyone for tuning in as a little bit of a wrap up if this resonated with you. If you've got absolutely any questions, please reach out to us. We are more than happy to make ourselves available to guide you through this time. And that's it for have a great Friday.