Home loans overtake other bills combined as rates rise
The annual increase in home loan repayments is equivalent to the average yearly costs for home and contents insurance, car and health insurance, utilities, home internet and mobile phone plan.
Home loan repayments for an average $500,000 loan are going to cost close to $12,000 more per year come Tuesday, which topples the combined cost of other household bills, according to financial comparison site Canstar.
Research from Canstar shows another 0.25 per cent cash rate rise on 7 February will increase mortgage repayments since April 2022 on a $500,000 loan over 30 years by a total of $969 per month or $11,628 per year.
The annual increase in home loan repayments is the equivalent to the annual average costs for home and contents insurance, comprehensive car insurance, health insurance, electricity and gas, home internet and mobile phone plan.
This shows the magnitude of higher loan repayments compared to other household bills with Canstar’s analysis finding it may be possible to cut almost half of the near $12,000 annual increase in loan repayments and make bills easier to cover by refinancing to a home loan with a lower rate.
Switching from the average variable rate of 5.98 per cent to the lowest ongoing variable rate of 4.29 per cent can save a borrower with a $500,000 loan over 30 years approximately $520 per month or $6,240 annually.
“Inflation has been off everyone’s radar for years, but now the increased cost of living is eroding our household budget,” Canstar’s finance expert, Steve Mickenbecker said.
“Every cost is going up and we are looking for ways to save on groceries, phone plans, petrol, electricity, insurances and everything else.”
“There is no line in the household budget that is hurting borrowers more than the home loan, nor is there one that has the potential for greater savings.
“The $500,000 home loan will be up by $12,000 this coming year.
“That $12,000 increase is the equivalent of your annual home insurance, car insurance, electricity bills, home internet and mobile phone plan. It underlines which expense is the real big picture for your finances.
“What’s more, you may be able to cut almost half of that $12,000 to make the other bills easier to cover by refinancing your home loan into a lower rate loan.
“After 3 percent of rate increases, the average rate borrowers are paying is 5.98 percent, which is 1.69 percent higher than the lowest ongoing variable rate loan listed on Canstar.
“That’s more than half of the total rate increase since May even if the Reserve Bank increases the cash rate again in February.
“The $6,000 saved won’t cover every living cost, but it will cover a lot and take some stress out of living. It’s too big to ignore.
“In December 2022, the value of loans refinanced to a new lender was 18 per cent higher than a year earlier. The early adopters are already moving and the rest of us should be joining them.
“If you have held your home loan for a few years or more, property price rises will mean you have built up healthy equity in your house.
“Lenders love that, and it’s time you used it to save money this year,” Mr Mickenbecker said.