A question for Aussie Homeowners

I’ve been hearing stories and reading articles over the last couple of months on how the increases in interest rates is meaning that homeowners will be facing higher mortgage repayments – I understand the pinch that you all are facing with this situation, but there is one big thing that doesn’t make sense.

Here in the States, we have a couple of major types of mortgages – fixed rate and adjustable rate (also known as an ARM) – they are what they sound like. With an ARM, it can change rates generally around every 6 months, but sometimes (and this is what happened in the subprime situation) the rate will be locked in for a period of time, and then shoot up to a more “proper” rate after a few years.

Obviously, the fixed rate mortgage is self-explanatory. However, what I don’t get, and this is something that isn’t explained is this – why does an increase in interest rates mean an increase for, it would seem, all homeowners?

Is it possible to get a fixed-rate mortgage in Australia, or is it all based on following what CommBank, NAB, ANZ and the other banks are lending at for the current term?

Of course, I can answer my own questions by wandering the ABC website – apparently at least BankSA (part of St. George) do offer fixed rate loans. Then again, in the rest of the world, it might sound like every American homeowner is facing the bank’s chopping block, so maybe it’s not unprecedented…

4 thoughts on “A question for Aussie Homeowners

  1. Yes, you can get fixed rate loans here. However, many of them are only “fixed” for a term of 5 years (I have no idea why) and are fairly inflexible in terms of how much extra you can repay. I know that the line of credit style loans were all the rage here because of the benefits of being able to have your wage and savings sit against the value of your loan and the flexibility of being able to pay extra off your loan and redraw at any time.

    That being said, I’m not sure why more people didn’t change their homeloans to fixed a couple of years ago when interest rates started to rise on a regular basis. That is what we *would* have done. Instead, we chose to sell up a couple of assets and clear our homeloan completely. Which is a comforting position for us right now.

    Now I’m not really “in the know” on all the ins and outs of homeloans here as our situation is considered “abnormal” and we didn’t fit most tradition home loans. When we did have a loan though, it was on a variable interest rate (the line of credit style loan).

  2. Hi Sephy

    We do indeed have fixed rate loans. It’s a betting game in a sense, so when the banks set the rate (and let’s face it who has a better idea of what the interest rates are going to do than the banks?) they don’t set it at a rate where they are actually going to lose money. Consequently, if you take a fixed rate you might have piece of mind knowing what your repayment will be for x years, but more than likely will end up paying more in the long run.

    Lightening is correct in saying that the penalties for paying over and above what you are required to can be horrendous. If you lock in for 3 or 5 years, and then need to sell your house (and if you can’t take the same loan with you), the payout penalties can really hurt.

    (BTW little known fact – I was a mortgage broker for 6 years before I became a blogger!)

  3. We do indeed, as Meg and Lightening have said, have all sorts of mortgage possibilities. Fixed, variable, part-fixed, part variable, etc is all available.

  4. Pretty interesting about the loan programs in Austrailia. My wife has had a few Aussies buying property here in Nevada. Some of their questions makes more sense now. Personally, I would rather know exactly what my payment will be over the life of the loan, rather than gamble on it. Seems like the house has the game rigged on that one.

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