Mortgage broker says ‘you have options’

By Neville and Keagan Modlin, The Lending Team

Hibiscus Coast-based mortgage brokers, The Lending Team, say currently, homeowners with mortgages are more overwhelmed than ever before.

Mortgage adviser Neville Modlin says the rising cost of living plus recent flooding and cyclone damage has placed many local families ‘on the edge’ financially.

“Many don’t know where to turn; but they do have options,” he says.

Neville says the company is receiving a high number of “SOS calls” from mortgagors. He says 80 percent of the homeowners who are getting in touch are currently on 2.5 percent to 3.5 percent fixed term interest rates.

“With renewal dates approaching quickly, they’re likely to refix at between 6 -7 percent,” he says. “On an $800,000 mortgage, that’s an estimated extra $400 per week or $1600 a month and for many families – which is daunting.”

He says a number of people don’t know that advisers can help with the refixing process; not only with new lending.

“Many homeowners are simply unaware that there are options available to help them during this tough time and that qualified personalised advice is key as every case is different.”

For any homeowners who are currently facing hardship or are concerned about repayments increasing, there are options available, and Neville says mortgagors don’t have to wait for their current term to end to kick these discussions off. “Early discussions are crucial as they give you time to explore all options on the table,” he says.

Some options are:

Mortgage Restructure

Mortgage structure is often overlooked by homeowners but can significantly impact their repayments. Key areas to consider include: • Floating vs Fixed Interest Rate

- On a floating rate, your repayments are influenced by the current variable rate at your bank. During 2022, this increased significantly which directly impacted repayments for homeowners with variable loans, revolving credit facilities and/or offset accounts. If you’re finding it tricky to adapt to these increases, fixing either all or a portion of the loan might be a great solution. Fixed rates are locked in for a certain time period, between 1-5 years, giving you reliability of repayments regardless of the market. • Extending your Loan Term –Depending on your current loan term and age, you could extend your loan term to reduce your repayments. Extending the term for a $500k mortgage from 20 to 25 years saves $350 a month (at 6.5 percent). Of course this means it will take longer to repay with more interest overall, however your repayments will be reduced while times are tough. • Interest Only Terms –Interest only terms are common with investment properties. They are also an option for homeowners under significant stress, including a change in employment. This means you only repay the interest on your loan during a set term (your mortgage loan will stay the same). Interest only terms are short (6-12 months) and not always extendable, but can provide significant short term relief, especially if you’re in danger of losing your house.

Refinancing

Refinances – where you move your existing loan to a new provider – have become a competitive market with banks eager to gain new customers. This also provides the option of restructuring the loan. At first glance, interest rates are relatively similar between the main banks, however a ‘cash contribution’ offer is often a great incentive to move providers. This is a cash incentive that is transferred to you upon refinancing. Most banks are currently offering a cash contribution of 1 percent; and some up to $25,000 - which could make a massive difference to some homeowners. However, there are potential costs to refinancing, including legal fees or break fees (if you refinance during your fixed term). “Optimally, you would refinance when your fixed rate is up for renewal to avoid this, but you can refinance even if your term isn’t up for renewal.”

Speak to the hardship team

Banks have dedicated hardship teams available to assist and advisers can help play an intermediary role for overwhelmed customers. The hardship team is dedicated to assessing options such as a personalised repayment plan on a case-by-case basis.

Neville’s key advice to those who are worried about increasing interest rates is that they need to have an understanding of their financial position now; not later.

“Many spend too long on the ‘what ifs’, however, it’s all speculation until they’ve had their bank or mortgage adviser assess where they are. From there it’s possible to come up with a workable solution.”