Mortgage rate increase due to Covid-19 are being considered for 2021.
Banks and lenders are now establishing how they will recoup from the cost of the pandemic, as found by a Finder.com report. This is despite the Reserve Bank keeping interest rates at a historic low of 0.25% for its sixth consecutive month.
Announcements made by the government on 25th September 2020, should make it easier for homeowners or those looking to enter the property market to get a mortgage. Increased regulatory obligations placed on lenders following the GFC saw an attitude of “lender beware” which in turn led to more in-depth scrutiny by lenders prior to providing customers access to credit.
The proposed changes will instead place a greater emphasis on customers providing accurate information to credit providers during the loan application process. These changes, widely welcomed by the industry, seek to improve access to credit as the Australian economy recovers from the impact of the COVID-19 pandemic. If passed by parliament, the changes will come into effect in March 2021.
These developments are showing how mortgage rates are dependent on many factors. The global economy and banks dealing with financially strained customers this year have both influenced the market.
Anticipating and adapting to developments in the industry is at the core of financial planning. Understanding how various strategies can be best tailored to your needs is the question everyone with a mortgage should be considering right now.
One purpose of your financial plan should be to keep more of your money in your pocket. Having a strategy around your debt structure and reviewing it annually so it is always fit for purpose is a corner piece of the financial planning puzzle. This could lead to a far better position than what your original mortgage offered.
Cost of the Pandemic on the Banks
There are a variety of factors that could make home-loan lenders increase their benchmark rate. This has resulted from the rise in the cost of business for the banks. The pandemic has meant home-loan deferrals and a shrinking first-home buyer market have created a major loss in cash flow.
Banks are now assessing how they will recover from this with a return to normal economic activity still out of sight. This means now is an appealing time to reassess your own mortgage to see if it is a strong foundation for your overall financial structure.
Fitting Your Mortgage and a Mortgage Rate Increase Into Your Financial Plan
You can look at your mortgage as a puzzle piece to your overall financial plan. It is an integral part of your overall goals, but components such as interest rates and how long your repayment period is could greatly affect your goals and when you reach them.
Getting your debt in control could lead to a range of possibilities for you, your financial plan, and your life. Reorganising your debt so you can see how it will be paid over the years, whilst still factoring in repayment increases, can put you on track for a successful transition to retirement.
Mortgages and even a mortgage rate increase are something that nearly everyone deals with, but regularly reviewing yours so it is structured in a way that works with your goals is something a financial planner can provide and we excel at it at Yield – Financial Planner Melbourne. This can keep more of your money for the things that you want to do.
A mortgage rate increase is one of the many developing changes in the financial industry due to Covid-19. If any of these points makes you consider your current mortgage, and if it is best suited for you, please contact us and we would be happy to discuss the current lender market or your debt structure.