It seems that lately, even if you turn off the TV and put your phone down, news of interest rate hikes is hard to escape. People are making a lot of noise about the interest rate increases, but for most Aussies looking to get a home loan, the rise in rates may affect them in ways they have remained oblivious to.

We’ve prepared this brief guide on understanding why high interest rates could seriously impact your home loan application, and how a mortgage broker can help.

Why are interest rates increasing?

Through the COVID-19 pandemic, low interest rates helped to stabilise the Australian economy. However, since the onset of COVID-19, the inflation rate in Australia has drastically risen. To bring inflation back to a manageable level, the Reserve Bank of Australia has made a number of increases to the cash rate target in a short time period. In turn, this affects interest rates on both investments and borrowing money.

Those with mortgages looking at refinancing or taking out a home loan may think that higher interest rates will solely affect their loan repayments. There is more to it, though: mortgage lenders do not assess your ability to repay a loan on the current interest rates; instead, they use an assessment rate.

Lenders set their own mortgage assessment rates to take into consideration the potential increases and decreases in the interest rate over the life of a home loan.

How can assessment rates put a pin in new home loans?

The Australian Prudential Regulatory Authority (APRA) increased the minimum buffer it expects Australian banks to use when assessing home loan application serviceability to 3.00% above the loan product rate! What this means for borrowers is that their home loan application will potentially be assessed at over 3.00% above the standard home loan interest rate.

This can be disheartening for those who have been able to save a deposit and think that they can afford to borrow funds for their first home or get into the property market — only to find they experience lender resistance due to high assessment rates.

Should I use a home loan mortgage broker?

Many lenders are bound to work in the institution’s best interests and can only offer their customers a particular product or rate. Sifting through the different terms, ongoing fees, understanding the comparison rate vs assessment rate vs interest rate, and knowing how your credit position will affect your application can be overwhelming — not to mention the assessment rate buffer which is now higher than ever (that most borrowers aren’t even aware of).

Mortgage brokers understand the lending market better than anyone. They are adept at understanding the intricacies of mortgage lending and can provide guidance, options, and perhaps most importantly, they have access to a range of lenders — so they can source the best product, rate and structure to suit each individual’s circumstances.

If you’re tired of using online calculators and comparison rates on the different home loans available, consider accessing a mortgage broker. Not only can they help source the right home loan for you, but they can also crunch the numbers on your loan-to-value ratio, your ideal loan term and model different loan amounts and structures to find the best fit.

Accessing the best local mortgage broker

There are many costs involved in buying property, don’t let opportunity cost be one. Regardless of whether you’re looking at an owner-occupier or investment property, pwmFinance can provide expert home loan advice and are trusted mortgage brokers in Orange, NSW.

We are committed to sourcing finance options that are in your best interest, all while providing excellent service in a tough interest rate environment.

Reach out to us today to uncover how a pwmFinance mortgage broker can put you in front of the right lender and into your next property.