November rate hike predicted: What does this mean for your mortgage?

All Four Major Banks have changed their tune on their official cash rate predictions. All four are now predicting a cash rate hike to 4.35% next week.

Previously only NAB were predicting a peak of 4.35%. So why the change?

Last week, the Aus Bureau of Statistics (ABS) released its inflation Data for the September Quarter, with the consumer price index increasing by 1.2% (which was larger than anticipated).

In 2023, Australia experienced a fluctuating trend in inflation rates (or CPI), quarter on quarter.

The first quarter experienced a moderate rise of 0.7%, followed by a slight dip in the second quarter with an increase of 0.6%. The third quarter witnessed a significant jump with the inflation rate soaring 1.2%, exceeding economists’ expectations. This rollercoaster trend prompted a re-evaluation of interest rate predictions by major bank economists. The predicted cash rate hike to 4.35% next week would be a blow to mortgage holders and prospective home buyers. For those of you currently holding variable rate mortgages, this change will likely result in higher repayment amounts. So what can you do? Start by reassessing your budgeting strategies and consider taking active steps to mitigate the impact.

How to navigate rises?

2023 has been the year of refinancing. As interest rates soared at record levels from May of 2022, mortgage holders turned to refinancing in staggering numbers. PEXA, Australia’s online property exchange network, reported that the first week of September 2023 saw refinancing volumes reach an unprecedented peak, with their Refinancing Index revealing the volume of refinancing still up 16.7% in October compared to the same week in 2022.

The volume of refinancing activity hit over 450,000 in FY23, up by 13.8%.

This marks a considerable increase in refinancing activity, particularly when compared to the lull periods during Australia’s COVID-19 years in April-May 2020 and February-March 2021. 

The compelling data from the PEXA Refinance Index paints a vivid picture of the current financial landscape where refinancing is becoming increasingly attractive to mortgage holders.

Mark Bouris spoke to PEXA earlier in the year about the rise in refinancing, who stated, “Unfortunately, when inflation is doing what it’s doing at the moment, the people who bear the brunt of repairing the spike are those who borrowed money to buy a house.”

“While these are definitely complex and uncertain times for borrowers, now is not the time for panicking – it’s time to strategise.”

“You need to be conscious of saving money in everything you do, to make sure you can continue to sustainably pay your mortgage.”

“And the most important step is to check your current interest rate against other competitive offers out there. Any mortgage owner who doesn’t assess their current deal will face growing pressure as rates continue to increase.”

“There are a large number of Australians who never bother to check their interest rate – this means they simply won’t know if they’re paying too much and then never actually refinance – at the end of the day, these are the people who will end up paying over the top.”

Steps to deal with rising repayments

In the face of further rate hikes, rising repayments can pose a significant challenge for mortgage holders. However, with a strategic approach and proactive measures, you can effectively navigate this financial landscape.

It’s crucial to stay proactive and informed about the changes in the financial market. While these predictions may seem daunting, proper planning and strategising can help alleviate the potential stress on your budget.

Here are some steps you can take to deal with rising repayments:

• Assess your current mortgage rate and compare it to other competitive offers in the market. This will help you determine if you’re paying too much and if refinancing is a viable option for you.
• Consider locking in a fixed interest rate to protect yourself against any potential future increases in interest rates.
• Review your budget and cut back on unnecessary expenses to free up additional funds for mortgage repayments.
• Consider making extra repayments towards your mortgage when possible to reduce the overall interest paid and pay off your loan sooner.
• Seek out professional advice from a mortgage broker. These financial experts have an in-depth understanding of the market and can provide personalized guidance tailored to your unique circumstances. They can help you navigate the process of refinancing, if it’s the right move for you, as well as find competitive interest rates and negotiate terms on your behalf. Remember, the goal is to set you up with a mortgage that serves your financial situation best, both now and in the future. It’s important to engage in open and transparent discussions with your broker about your financial capabilities and expectations.

Read more about 5 Ways to Protect Yourself Against Rate Hikes.

Bouris said that borrowers looking to enter the market have got to make a decision on how they want to manage their mortgage:

“For borrowers who currently have a variable rate home loan or are about to borrow money and have the option of a fixed or a variable interest rate product, I think it’s a personal decision.”

“If you want to be absolutely sure that your monthly repayments are going to be ‘x’ dollars a month for three years, get a fixed rate product, and whether rates go up or down, you’re hedged – you’ve locked in your monthly dollar value of repayments. But there are sometimes some hidden costs in that process – for example if you want to pay in more than your set repayments, sometimes there is a penalty to do that, so they don’t have the flexibility of a variable rate.”

“Ultimately, when it comes to your mortgage, the most important thing is that you choose one that suits your personal situation.”

With major banks predicting a cash rate hike next week, it’s likely that this trend will continue as more individuals seek out better refinancing options.

On the other hand, for those contemplating entering the property market, the rate hikes should signal the need for financial planning. If you’re contemplating a home loan, this is a wake-up call to factor in potential interest rate rises in your borrowing calculations and to lean on the expertise of a mortgage broker. Remember, knowledge is power when it comes to managing your finances effectively in these unpredictable times.

So, don’t hesitate to assess your mortgage and explore refinancing options. With the right approach and guidance, you can stay ahead of the game and navigate rising repayments with ease.