With interest rates expected to rise through 2023, the lending market is likely to remain competitive for the foreseeable future; thus, it is crucial that you choose a lending solution that serves your needs. In order to keep you in the know about your home or investment mortgage loan in 2023, we have compiled the following ideas.
Borrowers with a variable rate loan won’t feel the full effect of 2022’s rate hikes on their monthly payments until early 2023. It’s wise to have a sense of your expected payback amount and try to work it into your budget right away. In instance, if you want to switch from a fixed-rate to a variable-rate mortgage in 2023, you should start thinking about what your monthly payments would be like then. Even if your fixed rate is about to expire, you still have time to give this new spending plan a try. Investment loans and mortgages may be a few points higher than residential mortgages but this can be offset with the higher rental yields investors may currently be facing.
2. Values Determined by Assessment
The assessment rate used by banks to determine how much you may borrow has increased as interest rates have climbed. Financial institutions do not determine your borrowing limits depending on the rates they are currently offering. When calculating your borrowing capacity, banks add a 3% margin to the interest rate you will pay. When interest rates on mortgages were just 2%, banks would calculate borrowers’ repayment capacity at a rate of 2% plus 3%, or 5%. For example, if interest rates have increased to 4.75%, the assessment rate for banks would be 4.75% plus 3%, or 7.75%. If interest rates continue to climb, this might make it more difficult for you to refinance or make a large purchase. Knowing the assessment rate is crucial for planning your application submission, as a jump in the rate might reduce the amount you are approved to borrow and force you to rush to get your paperwork in before the deadline.
Core logic reports that property values in most of Australia’s real estate markets have fallen from their peaks in the second half of 2022 affecting both residential and investment mortgage loans. While this might be ideal if you’re in the market to purchase, it could put you at danger if you’re hoping to sell, refinance, or add on. The current market value of your home will be considered by the lender when you refinance or ask for an increase. There’s a chance you’ll have to pay a mortgage insurance premium to the lender if the value they assign to your home is high enough (LMI). Lenders Mortgage Insurance premiums are required if the borrower’s loan exceeds 80% of the value of the collateral being mortgaged. You won’t be allowed to refinance if your LVR is over 80%, but as long as you can keep making your payments at your present bank, this isn’t a major concern right now4..
4. Financial Difficulty
You should get in touch with your mortgage brokers or bank immediately if something happens that causes you financial difficulty. The banks have special departments and procedures set up to help you get back on your feet after a financial setback.
5. Debit and Credit Balances
To get the most out of your home loan offset account, you should contribute the maximum allowed each month. If you have a $1 in your offset account, that’s one less dollar applied to your loan balance, which means less interest paid overall. If you have a $500,000 loan and $20,000 in an offset account, interest will only accrue and be paid on $480,000. Since interest is accumulated daily but only debited once a month, utilizing your offset as your primary checking account and having your pay check deposited there can help you save money on interest. It’s excellent if your lender allows you to open numerous offset accounts, since this gives you more flexibility in meeting your various savings goals while also lowering your overall interest rate on your mortgage. For investors, this could mean having rental income directly placed into offset accounts, and paying investment property expenses up to the latest due date.
6. Examine your current financial standing by looking through your credit card statements, lease, and bank accounts.
Notify the bank or Credit Card Company if you find any dormant accounts or outrageous charges on the lease. The yearly charge on most credit cards is also recurring, and inactive transaction accounts may incur account maintenance costs. It’s possible that the interest rates on some automobile loans (leases) are currently through the roof. If you want to avoid paying these fees or making these extra payments, you might consider closing and combining any accounts you no longer need or use, or that can lower the total cost of some leases. Remember that you may consolidate your other debts into one low monthly payment by refinancing your auto loan and credit card balances into a mortgage.
7. Set aside an emergency fund
After paying for the things you’re planning to buy, you should still have some money left over for emergency expenses. This should assist you cover any emergency costs that could occur, whether linked to the home you’re buying or to your everyday life. And that’s becoming increasingly important as living expenses grow. This can also assist investment properties, if there is a period of non-vacancy, where investment mortgages need to still be covered.
8. Understand your credit rating.
Pay your bills on time and monitor how often you apply for new credit. Your credit history will be altered each time you apply for a new credit card, personal loan, lease, or mortgage loan. If you want to avoid any unpleasant shocks on your credit report, it’s a good idea to update your contact information and set up direct debits with your telecommunications providers, utility companies, and banking institutions.
9. Recognize the nature and goal of your current loan
The terms of your loan, such as the interest rate and repayment schedule, may depend on the nature of the loan or the reason for taking it out. Interest-only mortgages, for instance, cost more over the life of the loan than do traditional, principal-and-interest mortgages. If your financial situation has changed since you first took out the loan, it’s a good idea to re evaluate the terms to make sure they’re still in your best interests.
10. Loan terms and interest rate reviews
Every year, our mortgage brokers at orchardlending.com.au sends out a reminder email to all of its clients to check in on their loan rates and terms to make sure they are still getting the best deal possible. We’ve also set up notifications to check in with you a few months before any interest-only or fixed-rate terms expire. However, between these yearly meetings, if you have any financial questions or concerns, please contact us at to see how we may assist you.