$140 less a month: how falling mortgage repayments are pushing up property prices

$140 less a month: how falling mortgage repayments are pushing up property prices

The RBA has left the cash rate on hold today at 0.10 per cent, despite escalating property prices across the country.

Record-low mortgage rates (see below for current rates) mean people can borrow tens of thousands of dollars more from the bank, without a spike in monthly mortgage repayments.

In fact, mortgage repayments for an average home buyer have actually dropped since the previous housing peak of October 2017.

Analysis of owner-occupier rates from RateCity.com.au and property prices from CoreLogic show mortgage repayments are $140 less a month for the average new home buyer than in the previous housing peak of October 2017.

This is because the average owner-occupier interest rate has dropped by 1.42 per cent in this time, according to the RateCity.com.au database.

Family (1.5 x full time income)      
  Previous peak

(Oct 2017)

Today Difference
Median dwelling value (national, Core Logic)

$537,883

$598,884

$61,001

Average home loan rate

4.30%

2.88%

-1.42%

Monthly repayment

$2,129

$1,989

-$140

Annual income (1.5 x ordinary full-time wage)

$122,429

$133,505

$11,076

Monthly mortgage repayments to income ratio

21%

18%

-3%

Debt to annual income ratio

3.51

3.59

0.07

Sources: CoreLogic, ABS, RateCity.com.au (see full notes at end).

RateCity.com.au research director, Sally Tindall, said: “Ultra-low interest rates have put a rocket under the property market and it’s showing no signs of slowing down.”

“While low rates are driving current prices north, predictions of up to 20 per cent property price rises over the next couple of years are pushing people to panic buy,” she said.

“First it was toilet paper, now it’s property. People are rattled because they don’t want to miss out.

“The reality is thousands of families have already, or will soon, find themselves priced out, particularly in hotspots such as Sydney and Melbourne.

“While the RBA is unlikely to raise rates to keep a lid on the market this year, the regulator could respond by putting caps on risky lending for some borrowers.

“If you are looking to buy a home, don’t just work out the monthly mortgage repayments, look at how much debt you’re willing to take on.

“Interest rates are keeping mortgage repayments manageable now, but home loans are a 30-year commitment. The last thing you want is to be saddled with debt you can’t afford to repay in five- or ten-years’ time.

“In this unpredictable life, jobs can be lost, or incomes slashed without warning. When it comes to a home loan, don’t bite off more than you can chew,” she said.

Home loan rates

Analysis of the RateCity.com.au database shows:

  • Since 1 January, 40 lenders have cut 606 fixed and variable home loan rates.
  • 14 lenders have hiked 63 home loan rates in the same time period.
  • Currently 56 lenders are offering 151 home loan rates under 2 per cent.

Lowest fixed rates on RateCity.com.au

Fixed term Lender Advertised rate
Variable Homestar Finance, Reduce Home Loans 1.79%
1-year Greater Bank 1.69%
2-year HSBC, Homestar Finance 1.88%
3-year UBank 1.75%
4-year Westpac, St George, Bank of Melbourne 1.89%
5-year Aussie 1.99%

Source: RateCity.com.au. LVR restrictions may apply

Single buyer      
  Previous peak (Oct 2017) Today Difference
Median property value (national, CoreLogic)

$537,883

$598,884

$61,001

Average home loan rate

4.30%

2.88%

-1.42%

Monthly repayment

$2,129

$1,989

-$140

Annual income (ordinary full-time wage)

$81,619

$89,003

$7,384

Mortgage repayments to income ratio

31%

27%

-4%

Debt-to-income ratio

5.27

5.38

0.11

Sources: CoreLogic, ABS, RateCity.com.au (see full notes at end).      

Notes:

  • Dwelling prices are from CoreLogic Hedonic Home Value Index Results (October 2017, February 2021).
  • Income is based on the full-time adult average weekly ordinary time earnings from the ABS (November 2017, November 2020) using seasonally-adjusted data. A family income has been estimated at 1.5 times this wage.
  • Average rates are for new owner-occupiers paying principal and interest across fixed and variable loans on RateCity.com.au (October 2017, March 2021).
  • Monthly repayments are based on someone paying principal and interest on a 30-year loan with a 20 per cent deposit. Assumes stamp duty is paid upfront.
  • Debt-to-income ratio is based on the loan size and the households’ total gross annual income.

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How to use the ME Bank reverse mortgage calculator?

You can access the equity in your home to help you fund your needs during your senior years. A ME Bank reverse mortgage allows you to tap into the equity you’ve built up in your home while you continue living in your house. You can also use the funds to pay for your move to a retirement home and repay the loan when you sell the property.

Generally, if you’re 60 years old, you can borrow up to 15 per cent of the property value. If you are older than 75 years, the amount you can access increases to up to 30 per cent. You can use a reverse mortgage calculator to know how much you can borrow.

To take out a ME Bank reverse mortgage, you’ll need to provide information like your age, type of property – house or an apartment, postcode, and the estimated market value of the property. The loan to value ratio (LVR) is calculated based on your age and the property’s value.

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.

What do people do with a Macquarie Bank reverse?

There are a number of ways people use a Macquarie Bank reverse mortgage. Below are some reasons borrowers tend to release their home’s equity via a reverse mortgage:

  • To top up superannuation or pension income to pay for monthly bills;
  • To consolidate and repay high-interest debt like credit cards or personal loans;
  • To fund renovations, repairs or upgrades to their home
  • To help your children or grandkids through financial difficulties. 

While there are no limitations on how you can use a Macquarie reverse mortgage loan, a reverse mortgage is not right for all borrowers. Reverse mortgages compound the interest, which means you end up paying interest on your interest. They can also affect your entitlement to things like the pension It’s important to think carefully, read up and speak with your family before you apply for a reverse mortgage.

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

How do I calculate monthly mortgage repayments?

Work out your mortgage repayments using a home loan calculator that takes into account your deposit size, property value and interest rate. This is divided by the loan term you choose (for example, there are 360 months in a 30-year mortgage) to determine the monthly repayments over this time frame.

Over the course of your loan, your monthly repayment amount will be affected by changes to your interest rate, plus any circumstances where you opt to pay interest-only for a period of time, instead of principal and interest.

How do you determine which home loan rates/products I’m shown?

When you check your home loan rate, you’ll supply some basic information about your current loan, including the amount owing on your mortgage and your current interest rate.

We’ll compare this information to the home loan options in the RateCity database and show you which home loan products you may be eligible to apply for.

 

Does the Home Loan Rate Promise apply to discounted interest rate offers, such as honeymoon rates?

No. Temporary discounts to home loan interest rates will expire after a limited time, so they aren’t valid for comparing home loans as part of the Home Loan Rate Promise.

However, if your home loan has been discounted from the lender’s standard rate on a permanent basis, you can check if we can find an even lower rate that could apply to you.

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

How much debt is too much?

A home loan is considered to be too large when the monthly repayments exceed 30 per cent of your pre-tax income. Anything over this threshold is officially known as ‘mortgage stress’ – and for good reason – it can seriously affect your lifestyle and your actual stress levels.

The best way to avoid mortgage stress is by factoring in a sizeable buffer of at least 2 – 3 per cent. If this then tips you over into the mortgage stress category, then it’s likely you’re taking on too much debt.

If you’re wondering if this kind of buffer is really necessary, consider this: historically, the average interest rate is around 7 per cent, so the chances of your 30 year loan spending half of its time above this rate is entirely plausible – and that’s before you’ve even factored in any of life’s emergencies such as the loss of one income or the arrival of a new family member.

What is the difference between fixed, variable and split rates?

Fixed rate

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Variable rate

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

Split rates home loans

A split loan lets you fix a portion of your loan, and leave the remainder on a variable rate so you get a bet each way on fixed and variable rates. A split loan is a good option for someone who wants the peace of mind that regular repayments can provide but still wants to retain some of the additional features variable loans typically provide such as an offset account. Of course, with most things in life, split loans are still a trade-off. If the variable rate goes down, for example, the lower interest rates will only apply to the section that you didn’t fix.

How much are repayments on a $250K mortgage?

The exact repayment amount for a $250,000 mortgage will be determined by several factors including your deposit size, interest rate and the type of loan. It is best to use a mortgage calculator to determine your actual repayment size.

For example, the monthly repayments on a $250,000 loan with a 5 per cent interest rate over 30 years will be $1342. For a loan of $300,000 on the same rate and loan term, the monthly repayments will be $1610 and for a $500,000 loan, the monthly repayments will be $2684.

How much deposit do I need for a home loan from ANZ?

Like other mortgage lenders, ANZ often prefers a home loan deposit of 20 per cent or more of the property value when you’re applying for a home loan. It may be possible to get a home loan with a smaller deposit of 10 per cent or even 5 per cent, but there are a few reasons to consider saving a larger deposit if possible:

  • A larger deposit tells a lender that you’re a great saver, which could help increase the chances of your home loan application getting approved.
  • The more money you pay as a deposit, the less you’ll have to borrow in your home loan. This could mean paying off your loan sooner, and being charged less total interest.
  • If your deposit is less than 20 per cent of the property value, you might incur additional costs, such as Lenders Mortgage Insurance (LMI).