Strategies for borrowers to navigate a high-interest landscape in 2024

As Australians adjust to an ever-evolving economic environment, experts at the financial comparison site Mozo are suggesting savvy tactics for borrowers to weather the storm of persistent high-interest rates. With the Reserve Bank of Australia (RBA) potentially hitting the peak of interest hikes, Mozo’s analysis indicates that tens of thousands of dollars could be saved by borrowers who meticulously compare rates and reassess their Loan-to-Value Ratios (LVR).

Mozo’s money expert, Rachel Wastell, advises that the country is poised for a “higher-for-longer interest rate environment.” According to Wastell, “The RBA may start cutting the cash rate later this year, but it’s unlikely we’ll get back to those ultra-low interest rates starting with 1 or 2 we saw during covid in the near future. In fact, they may never return at all.” She highlights that the cost of essential services, including energy and housing, continue to surpass the RBA’s comfort zone even as inflation shows signs of slowing.

Wastell calls for borrowers to employ savviness in selecting home loan lenders, reminding them of their bargaining power. “Home loans are six or seven figures of debt, which makes mortgages valuable commodities to the banks. If you’re a mortgage holder that pays your mortgage on time and can meet serviceability requirements, you should remember that you hold a certain level of bargaining power.” The Mozo database confirms the highly competitive nature of the Australian home loan market with a wide array of lenders offering varied interest rates.

Even the modest difference of 0.10% between the two lowest rate home loans on Mozo’s database can represent an additional $11,000 in interest payments over 25 years. This demonstrates the impact that negotiating even a small rate reduction can have over the long term.

For homeowners who have been diligent in repaying their mortgages, a reduced LVR is likely, yet Wastell points out that banks won’t automatically lower rates in response. Borrowers must take the initiative, as Wastell states, “Property owners who have been paying off their home loans for four or five years are likely to find their LVR has reduced, however most banks do not automatically adjust the rate as borrowers pay off their loan.”

Mozo underscores the potential for considerable savings, with its data showing striking interest rate disparities across different LVR tiers. For instance, a 0.54% rate differential between a 60% and 90% LVR could mean a $61,904 difference in interest across a quarter-century loan term.

For those with lower LVRs, Wastell recommends, “If you have a low LVR, finding these LVR specific rates from lenders can really help you save a significant amount of interest over the course of your loan.”

With the guidance of financial experts and the clever use of comparison tools, Australian borrowers might indeed stay afloat and perhaps even thrive in a persistently high-rate climate.