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Fixed rate fallout: New tidal wave of mortgage stress on the horizon

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Mortgage holders coming off fixed rates could be plunged into mortgage stress, according to new research by Finder.

A Finder survey of 1,090 respondents – 301 of whom have a mortgage – revealed 14% of homeowners will be coming off a fixed rate by the end of the year.

That's an estimated 462,000 loans coming up for renewal.

The same proportion of mortgage holders (14%) have already come off their fixed interest rate in the past 12 months.

More than 1 in 10 (11%) don't know if or when their fixed rate period ends.

RBA governor Philip Lowe projected that 1 million borrowers would go from fixed to variable over the next 18 months during his recent address to the House of Representatives standing committee on economics on 11 August.

This comes as Finder's Consumer Sentiment Tracker shows a staggering 40% of Aussie mortgage holders – equivalent to 1.32 million households – say they are already struggling to pay their home loan in August.

Richard Whitten, home loans expert at Finder, said a mortgage crisis is brewing in Australia.

"The financial reality for millions of homeowners is very grim.

"Housing is becoming an increasing source of stress for the majority of Australians and there's very little wiggle room."

Finder analysis reveals borrowers who took out a two-year fixed-rate loan in 2021 at a near rock-bottom 2.21% rate could see their repayments on an average home loan of $580,247 skyrocket by $1,677.

Based on today's average home loan rate of 7.06%, this would see payments go from $2,207 to $3,884 per month.

Whitten said mortgagors should aim to pay no more than 30% of their income towards their loan.

"Our research shows the number of people struggling to meet home loan repayments has reached a 4-year high.

"Rapidly rising interest rates have put first-time homeowners in uncharted territory."

Whitten said if there is ever a time to reassess your home loan, it's now.

"Refinancing is a good way to reduce your home loan costs, with the best rates on the market right now hovering above 5%.

"Mortgage holders should do a simple cost-benefit analysis using Finder's repayment calculator to see how much they could save by switching to a new loan.

"Many lenders offer deals to new customers, so switching can get you a better rate compared to staying with your current lender. That said, it's still worth asking your current lender if they can put you on a lower rate," Whitten said.

Are you coming off a fixed rate mortgage this year?
No, I'm not coming off a fixed rate this year34%
No, I only have a variable loan29%
Yes, I will be coming off a fixed rate this year14%
Yes, I have in the last 12 months14%
I don't know11%
Source: Finder survey of 301 homeowners, June 2023

Find out if you are under mortgage stress and what you can do about it.

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